Feel like you’re paying too much tax? You’re not alone.
After the relief of completing your tax return, you then of course have to deal with the tax bill that goes with it, prompting businesses all across the UK to look for ways to reduce the amount of tax they owe.
So, how can it be done?
For sole traders, there are several simple changes you can make that should help to ease the burden of a large and unexpected tax bill:
- Claim on mileage: If you use your car for business travel, you can claim tax relief either by using the HMRC’s rate per mile, or by working out the business proportion percentage of your total mileage.
- Work from home? Don’t forget you could be claiming on bills including electricity, council tax and broadband that count as costs of running your business. The amount you claim will be worked out as a percentage according to how many hours you work.
- Maximise tax-free savings: ISAs are a great way of being able to save your money tax-free – to get maximum benefit invest your full allowance of £20,000 for 2017/2018.
- Over-estimate the tax you owe: planning for a big tax bill will help you avoid any nasty surprises and put extra money in your pocket if your tax bill is lower than expected. If this is your first year submitting self-assessment, don’t forget about payments on account – you may have to pay 1 and a ½ times your year’s tax bill, all at once.
- Stay on top of your expenses: Shoving your receipts away in a drawer might seem like the easiest option at the time but it can be a real headache when completing your return – without keeping accurate and regular records of your expenses you’re far more likely to lose receipts and claim less back than you’re entitled to.
If you’re a limited company or small business there are a range of other options available that can help you reduce the tax you pay and maximise your savings instead:
- Lower your taxable profits: The less profit your company makes, the less tax it will pay, so it helps to claim back on direct expenses you can put through the business. Don’t forget that your company money is separate to your personal money, so find out what laws and restrictions affect any claims first.
- Eligible for capital allowances? The government has schemes in place to give tax relief to those businesses buying certain kinds of equipment and machinery. You can significantly cut your corporation tax bill so it pays to check whether you’re eligible.
- Can you claim R&D tax relief? If your business is involved in innovation, make sure you look into R&D tax relief to make some hefty savings…what is and isn’t considered ‘innovative’ might just surprise you.
- Salary sacrifice: Giving yourself or your staff tax-free benefits will help you cut the amount of National Insurance contributions your business has to pay, and could save you money in the long run.
- Pay yourself in dividends: It could be more tax-efficient for you to draw money out of your business as a share of profits, rather than as a salary. While you may have to pay tax on that dividend, you won’t have to pay National Insurance contributions on it.
- Tax-efficient government initiatives: You could also take advantage of tax-efficient schemes, such as investing in higher risk Venture Capital Trusts, which carry a 30% tax relief and a potential dividend tax rate as low as 2.5%.
As with every financial decision you make, it always pays to get professional advice first. If you’d like to speak to us at Chippendale & Clark about your tax relief options in confidence and under no obligation, we’d be more than happy to help.