Understanding your tax liabilities if you’re self-employed is crucial.
Indeed, the recent news about Sky Sports presenter Dave Clark should serve as a timely reminder that everyone needs to have their financial affairs in order. The goal with regards to managing your money, other than making sure you’ve got enough to pay your taxes, is to get the most value from it. Specifically, this means being tax-efficient and, where possible, turning the money you’ve saved into more money without incurring additional expenses.
This might sound complicated but it’s something every self-employed person can do. Indeed, with the right knowledge and a little bit of effort, you can not only get your financial affairs in order but make the most of your income. With this in mind, here are three tax and savings tips for the financially independent.
1. Make sure your claim relief on your expenses
An important part of any tax strategy for self-employed individuals is expenses. Making sure you actually know that you can claim expenses is the first step. However, you can’t simply claim relief for anything and everything. This is why you should read through HMRC’s allowable expenses guide. The general premise is that an “expense” is any cost associated with an act of carrying out your business.
For example, if you have an office, you can claim relief for supplies such as printer ink, internet costs, postage, and computer software. Other allowable experiences are things such as maintenance and repairs, rent, fuel, stock, and anything else you need to offer your services to the public.
2. Don’t ignore tax breaks
Moving away from businesses expensive and looking at your personal taxation, Individual savings accounts (ISAs) are colloquially known as tax wrappers. This means that any interest you earn from an ISA account is sheltered from income and capital gains tax (as long as you’re within your annual allowance). The same goes for stocks and shares ISAs. You can make investments (up to GBP20,000 in 2021-2022) via a stocks and shares ISA and shelter any earnings from income and capital gains tax.
These investments can’t be used as an expense. However, they do allow you to earn money on your personal income in a tax-efficient way. The market for these ISA accounts has grown markedly over the last ten years, with many brokers offering their services with different fee structures. Therefore, you need to calculate and compare your charges before opening an account. That means looking at an ISA’s monthly charges, what it costs to trade, and any other fees you might have to pay. Only by getting the right product can you get maximum value.
3. Choose your accounting dates wisely
HMRC has set dates for self-assessment tax returns. Specifically, the UK tax year runs from April 6 to April 5 in the following year. However, you can set your own year-end date at any point within this period. This gives you scope to set your accounting period to a point that allows you to maximise the amount of time you have to pay your bill.
You can also set it at a point that aligns with your business. For example, if you have a business where the majority of your income is made in the winter, your accounting period could be closer to this time of the year. Doing this means you’re more likely to have the money required to pay your bill. It’s not a sure-fire way to become a more tax-efficient individual. However, it’s another tool you can use to make sure you get maximum value from your income as a self-employed person.