Having looked at companies in my last blog, now we turn our attention to what you need to be thinking about in 22/23 to ensure you are running your self-employed business tax efficiently?
Ensure your profit is accurate
This may sound obvious – but be sure that you are keeping an accurate record of all your business costs to offset against your income. Use one bank account for all your business transactions, otherwise you will forget that you spent £6 on parking last week, and you bought some printer Ink from Amazon, along with the other personal items. These small amounts add up and if your profits are overstated, you will pay more tax than necessary.
Claim all relevant costs
Are you including in your accounts a charge for working from home, and for using your car for work? You can look back at my previous blogs to see how to calculate these costs.
If your profits are low, and you haven’t utilized all your Personal Allowance for the year, then if you are married you may be able to transfer part of your allowance to your partner and save tax overall as a couple. You can apply online and backdate your application to previous years if relevant. www.gov.uk/marriage-allowance
What rate of tax are you paying?
If you are a higher rate taxpayer then you could consider these measures to reduce your tax bill:
Pension contributions – you will receive a further 20% tax relief for making a pension contribution which you claim on your tax return. You can contribute up to £40k a tax year, and use up to 3 years previously unused contributions.
Charitable donations – by donating to a charity under Gift Aid, you can claim 20% tax relief on your donation through your tax return.
Your business structure – if all your income is coming from your self-employment and you are paying higher rate tax, it may be time to think about transferring your business to a limited company, where you have more tax planning options available to you.
Payments on account
If your tax bill is over £1,000 in a year, then you need to make payments on account of your next year’s tax bill during the year. These are based on the profit of your business last year. If current year profits are lower, then consider making a claim to reduce your payment on account to avoid overpaying tax during the year. Better still, get your tax return done quickly (your 21/22 tax return can be done now) so you have accurate figures and know what your tax bill in July 22 and Jan 23 will be.
If you require any further information or advice, then please contact Rosie Forsyth.