The start of 2017 for many, will be somewhat tainted by the landing of the dreaded tax bill.
Often coming at a time when finances are tight after the expenses and indulgences of the Christmas period, it will leave many sole traders wondering how they can go about reducing the amount of tax they pay.
The truth is, saving money on your taxes can be surprisingly easy to do – but too many miss out because they aren’t aware of all the options out there and fail to claim the tax relief that they are entitled to.
This 7-step guide will help you identify measures you can take to save money on your tax bill, and ensure you’re not paying more than you should be:
1) Claim from working from home
Do you use your home as a place to work from? If so, you could claim some of the running costs of your home – such as electricity bills, council tax and broadband payments – as costs of running your business. You will need to take into account how many hours a week you are using the space at home, and then calculate the cost of the room you work in per hour.
2) Use your car for business travel
If you use your car for business travel, you could claim this cost to bring your tax bill down. Sole traders can claim tax relief either by using the HMRC’s rate per mile, or by working out the business proportion percentage of their actual total mileage.
3) Keep accurate records
This is one of the factors that sole traders can struggle with the most, and is where using a good accountant can really make a difference. Keeping accurate records of every business expense, paperwork and invoice throughout the year – NOT just when your tax return demands it! – is one of the best, and simplest, ways to ensure you pay the right amount of tax each year.
4) Beware of payments on account
If your last Self Assessment tax bill was more than £1000, then you will need to pay HMRC payments on account; that is, 2 advance payments on your account, each being half of your previous tax bill. Of course, this will be an estimate so you may receive a refund or have to pay interest, depending on if you over or underpay. Most importantly, it means that if you are paying tax through Self Assessment for the first time, you may have to pay 1 and a half times your year’s tax bill, all at once. It’s therefore in your benefit to plan ahead, and save for any payments on account before you get stung.
5) Don’t pay more than you need to
While it’s important to prepare for any payments on account, you similarly shouldn’t resign yourself to making large advance tax payments for the year when you don’t have to. If you know that your tax bill is going to be lower than last year, you can ask HMRC to reduce your payments on account, either online or by filling out a form SA303.
6) Invest your money wisely
Don’t forget that you have the option to maximise pension and ISA savings, as a tax-efficient way to save your money. You can currently hold up to £15,240 in an ISA – but many people fail to use their full allowance and benefit from these tax-free savings.
Consider your investments with a chartered financial planner – there are tax efficient investments that can save you income in the now, and for your retirement in the future.
7) Get the right accountant!
If you’re looking to save money on your tax bill, it nearly always pays to use an accountant you can rely on to provide you with the necessary level of honest, expert and professional advice. While it can be tempting to reduce costs by dealing with your own tax affairs, it may well prove to be a false economy – the right accountant will always endeavour to save you money, despite the fees involved.
If you’d like to find out more about the best ways to save money for your business, talk to us today – we’d be happy to create a tax plan for you for free, and under no obligation to engage in our services.