by Oumesh Sauba, founder and CEO of MyT Limited
Being self-employed or owning your own business has long been a dream for many and thanks to the recent uncertainties in the world – think Covid, Brexit – more are turning to working for themselves.
According to the ONS, self-employed people now represent 15.3% of employment meaning there are more than 5 million self-assessment tax returns completed each year.
But with the cost of living continuing to increase it is important to save money where we can, including through our tax.
There are several ways you can reduce the amount of tax you pay simply by putting aside some time to go through each expense you have and seeing if you can claim anything towards the costs. It is also a good idea to investigate how and where you can invest your money, you earned it so you want to make the most of it.
For example, if you are considering buying a house in the future it is worth looking at opening a Lifetime ISA. These enable you to save money without paying tax, and the Government also tops up your savings by 25% (up to £1,000 per year) it certainly isn’t something you should ignore.
We’ve put together five other ways you could save on your tax bill.
1. Working from home.
While many self-employed or new businesses operate from our homes to save money on expenses such as office rents, did you know you still have tax-allowable expenses regarding your house?
In fact you can claim for some of your monthly bills including water rates, rent, mortgage interest and council tax. You can even claim some money back on your heating and lighting – definitely something we could use at the moment!
2. Own your loss.
If you are just starting out it can be a tough few years until you break even, however, this can help you once you start making an income. Using the carry forward feature of your tax return, you can carry forward a tax year’s loss into a year that you have made a profit, therefore reducing the amount of taxable income for that year.
3. Smart bookkeeping.
We all love a good app and bookkeeping is no different. By having an app on your phone to keep track of your expenses, invoices and any other financials relating to your business, you can make sure you are only paying the tax you owe.
There are many apps available now, including MyT, which allows you to be up to date on the position of your finances at any given time. A feature that is certainly handy when filling in your tax return.
4. Salaries and benefits.
If you have employees working for you, you can claim some expenses such as National Insurance contributions, insurance and pension benefits as well as their training and any childcare provision. Staff who earn more than £10,000 per year and are over the age of 22 are legally entitled to a company pension through auto enrolment so it is important you understand what you can claim to help you with these costs.
6. Plan for retirement.
While we are talking about pensions make sure you start paying into yours as soon as possible. If you already have a private pension do a maintenance check, for instance, how much is the Annual Management Charge (AMC)? It could be that there are more suitable pensions for you to move to. However, if you do decide to move your pension check with your provider if there are any exit fees as this could be more than the savings you make on the AMC.
If you don’t have a pension yet make this your priority. Not only can you claim tax relief on your pension from the Government, you will also benefit more from compound interest by starting early. A good place to start is to think about not only what you want to do when you retire but at what age. Currently the pension age is 66 years old while you can start withdrawing from your personal pension from age 55 – however these are set to increase to 67 and 57 respectively by 2028 and will continue to increase.
It is always good to speak to a financial adviser when making decisions like these and there are many that offer one-off or free advice.
Oumesh Sauba is founder and CEO of MyT Limited, an award-winning AI-driven accounting app and software designed to support freelancers and micro businesses with their bookkeeping and records. He is also director of his own accounting firm Sauba and Daughters Co, and has over 15 years of experience as a Chartered Management Accountant specialising in financial accounts, management accounts and taxes for small businesses.