How To Reduce Your Tax Bill If You’re Self-Employed
Self-employment comes with plenty of perks. Most people dream of being their own boss, and it’s true that starting your own business has plenty going for it. However, it isn’t short of challenges or obstacles either:…
10 Minute Read
Self-employment comes with plenty of perks. Most people dream of being their own boss, and it’s true that starting your own business has plenty going for it. However, it isn’t short of challenges or obstacles either: namely around tax and UK tax loopholes.
Being self-employed means understanding how to fill out a Self Assessment tax return, how tax deductions work, legal tax avoidance schemes and how to declare income correctly. Every penny is important when you set up on your own, and by getting to grips with finance you won’t just keep penalties at bay – you’ll also pay less tax in the meantime! To help you start identifying methods of tax avoidance, we have some guidance:
If you’re self-employed and pay tax at the higher rate of 40%, you can receive tax relief by topping up your pension, providing you declare these contributions on your Self Assessment tax form.
You can claim 20% tax relief on money put into your pension pot, on contributions up to the value of £40,000 every year. Plus, if you’ve forgotten to claim this in the past, it can be backdated over the past three years.
Incorporate your business
Whether you’ve just started out as self-employed or been an established solo trader for several years, it’s often worth looking into the possibility of incorporating your business.
As the size of your business increases setting yourself up as a limited company may give you the chance to reduce tax. Directors of incorporated businesses can withdraw part of their earnings as dividends, which are subject to much lower tax rates (7.5% for basic rate taxpayers) than income tax.
Plus, dividends are free from tax altogether for the first £5000. While this will fall to £2000 in April 2018, it’s still a great tax-saving potential for the self-employed.
Claim all allowable expenses
Whilst completing your Self Assessment form, you’ll be able to list all the expenses you make as a self-employed individual. Other than contractor tax avoidance schemes, HMRC offer tax relief to business owners, meaning you can claim money back for a variety of allowable work-related spends.
Understanding expenses is one of the best ways to trim your tax bill. These can vary depending on the nature of your business, but some examples include office equipment, electricity, travel payments (mileage, residence), legal costs, business insurance, uniform, and business group membership subscriptions, among others.
Use tax return software
No matter how many times you’ve punched in the necessary digits on your calculator and cross-referenced corresponding receipts, there’s always a chance you might have missed something. Thankfully, tax return software can pinpoint any errata so you can rectify accordingly and send a faultless form to HMRC.
Quality Self Assessment software can also help you to identify any potential savings that were missed the first time around. It asks the right questions according to your occupation and provides sage advice as you go, ensuring precision from start to finish.
SimpleTax is the perfect example of such Self Assessment software, giving you the opportunity to cut significant costs by reducing your tax bill. Sample SimpleTax with a 14-day free trial today.
Trusted by over 10,000 subscribers
You don't need to be an expert to complete your self assessment tax return.
Managing your finances has never been so easy.
Start you self assessment tax return today for free.Get Started
Creating An Invoice: A Guide For Beginners
03 Jan 2021
2021: The Year To Switch To Real-Time Record-Keeping
02 Jan 2021
Paying Tax For Freelancers And The Self-Employed Explained
20 Dec 2020
How GoSimpleTax Works
Simply register for free with your full name and email address.
Select Your Income
Select the income you receive and follow the hints and tips for potential tax savings.
Validate Your Information
Validate your personal information and submit directly to HMRC to get confirmation in just seconds.
Work Anywhere, With Any Device
Gone are the days of fretting over a calculator surrounded by scraps of paper at the eleventh hour.
GoSimpleTax’s tax return software uses the information you upload in real time to calculate your income and expenditure, working out the tax you owe and sending you helpful notifications when there’s the possibility of a mistake.
"The software is intuitive and proved very easy to navigate. I found the whole process refreshingly simple. I saved a lot of money too!"
"Easy to use and value for money. Everything you need to do your tax."
"It fills in all the forms and sends them to the Inland Revenue. Not expensive either. Takes the stress out of doing your tax return online."