We have teamed up with our accountancy partner, Mazuma, to provide a comprehensive guide full of professional tax-saving advice for freelancers and small businesses.
Below is a selection of tips and advice taken from the guide – all focussed on minimising your taxable profits. To read the tax-saving guide in full, download it for free here: Tax-saving advice for freelancers and small businesses
Minimising your taxable profits
Claim every cost you incur in running your business whether you have a receipt or not – you don’t have to have a receipt to satisfy the Tax Inspector. Your own evidence can be used where you don’t have receipts.
Just because you pay someone in cash doesn’t mean you can’t claim it. Get a receipt if you can, but otherwise make a note or the amount you paid, when you paid it and why. This record, created at the time of the expense, should be sufficient for the Taxman. Of-course you can’t claim the VAT back without a valid VAT receipt.
If you do any work from home, claim the part of the costs of running your home, which could even include a proportion of your mortgage interest.
Avoid Business Rates or Capital Gains Tax payable on use of your own home for work by not using any part exclusively for business. Even then, both are very unlikely to occur in practice and can be avoided.
Check how much your accountant is saying is for private use on mixed private/ business expenses such as telephone & motor costs. This should be based on today’s reality, not on a discussion you had years ago. So, review the private use proportions every year.
You may be able to reorganise your personal loans as business loans and get tax relief on the interest. In some circumstances it is even possible to reclassify part of your personal mortgage.
Get your home classified as your main place of work, so you can then claim for all motor costs as soon as you leave home. This can apply if you run your business from your home, or your employment contract requires you to work from home.
Purchasing items 1 day before your year-end can get you tax relief one whole year earlier.
If your business looks to make only a very small profit below £8,784 (for 2020/21), it pays to not claim any capital allowances you are entitled to, as they will be wasted. Better to save the allowances for future years when they are needed.
If you promote your business through a box at a football club, or by sponsoring a rally car, etc you need to show the business will benefit for the cost to be tax deductible. For example, have the name of your business shown prominently on the car, display pictures of the car where potential customers will see them, and maximise publicity for the car and your business in the local papers and TV programmes. Also avoid a sport in which owners of the business are personally involved.
Claim back any statutory maternity, paternity or adoption pay, you pay to employees who become parents. Small businesses can get 103% of the amount paid out back from the Taxman.
If you use your goods from your business for your personal use they are taxed on you at your selling price. So make sure you buy them directly from your supplier yourself to avoid this.
The lower your stock value, the lower your taxable profits. If any stock is now worth less than you paid for it, or less than the amount it cost you to produce, make sure you’re the value for this stock shown in your accounts is the lower amount.
If you are starting a new unincorporated business and expect to have low profits or even losses in the first few years, choose a year end early in the tax year such as 30th April. This will help keep your tax bills down in the early years. In addition, having a year-end early in the tax year, helps give you more time to plan for your tax bills.
You should also consider if your trading pattern will be seasonal – like an ice-cream van would be. If it is, choose a year-end just before your peak sales period to lengthen the time between making most of your profits and paying the tax due. For example, for a business with heavy Christmas sales, an October year-end will delay paying the tax for 12 months on the profits made in November and December.
If you run an existing unincorporated business you may benefit from overlap relief, which arose when some of your profits were taxed twice at the beginning of your business, by changing your business year end.
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