How to Reduce Your Tax Bill
As a self-employed businessperson it's your responsibility to organise your tax affairs. It is completely legal to look for ways you can legitimately reduce your tax bill each year. Remember, tax avoidance is completely legal, but tax evasion is illegal. Ensure you know the difference.
Use the checklist below to help you reduce your tax bill:
- Use an Accountant
They can help you reduce your tax bill, as they understand how the tax system works in detail. The tax system can be highly complicated for a layperson to understand. Also, as each business has a set of unique trading circumstances, an accountant can take these into consideration when looking at your business's entire tax liability.
- Avoid Investigations
Every year thousands of self-assessment taxpayers are randomly selected for an investigation. This means that the Revenue take a closer look at your accounts. You can avoid any fines that will push your tax bill higher by keeping accurate up-to-date records.
- Check your Tax Code
The amount of tax you pay is directly linked to your tax code. The calculation of your tax code is quite a complicated procedure, but it's important that you have the right tax code. Ask your accountant to double-check your tax code to make sure it is correct.
- Make the Most of Allowances
On top of your usual personal allowance that is your tax-free income, you may be able to radically reduce your tax bill by claiming any other allowances that are applicable to your particular circumstances. Check with the HMRC to ensure you are claiming all the allowances you are able to.
- Claim All Deductible Expenses
Remember that you pay tax on the profit of your business. This is the difference between the amounts of money you business earns, minus its operating costs. Look at every possible deductible expense that you can legally claim, as they will ultimately reduce your overall tax bill in any given year.
- Give to Charity
There are tax efficient ways in which your business can make donations to charity and receive a tax incentive. There are strict rules about how this can be done, so consult your accountant or a financial advisor to help you set up these donations.
- Equipment Purchases
If your business needs to buy any plant or machinery consult your accountant as making the purchase at a particular time of the year can help you reduce your tax bill as you can claim expenses that offset some of your tax liability.
- Reduce your Corporation Tax
This tax is paid by all limited companies. As with any other tax there are techniques you can use to reduce this bill. These include reducing your business's profitability, offsetting past losses against your current tax bill and taking money out of your business. It's important to get good advice as to which technique would reduce your tax liability.
- Open a Cash ISA
Money can be sheltered in a cash ISA for a year. You don't have to list this money as an asset on your tax return and you don't pay tax on the interest that your ISA gains over the year. Also, investigate opening a personal pension plan, as there are also generous tax incentives to do so from the government.
- Invest in Other Businesses
There are a number of enterprise investment schemes that you can invest in. The investments you make are eligible for income tax relief. Consult a financial advisor and your accountant to ensure the other steps you are taking to reduce your tax bill will not conflict with each other.
It is almost impossible to pay no income tax at all unless your business is consistently running at a loss. You are not, however, powerless when it comes to the amount of tax you have to pay. There are a wide-range of options that you and your business could use to reduce your bill. Remember, tax avoidance is completely legal!