making tax digital

Tring accountants, that can help reduce your tax liability

It’s a fact - nobody likes paying tax, so the more you can reduce your tax liability the better. But did you realise that as soon as you decide to go into business you should be thinking about your tax liability? Or that being complacent about income tax could see you losing out?

Tax can be a bit of a minefield, so in this blog, we look at some things you should consider if you’re starting out in business, a sole trader or just interested in reducing your income tax.

1. Sole trader vs limited company: which is the best way to operate?

The most tax efficient way to take money out of your company very much depends on your own individual circumstances and situation.

Many people register as a sole trader when they first start out, because:

  • It is easy to set up
  • It is low cost and there aren’t any registration fees to pay - great if you don’t have much start-up capital
  • There are fewer statutory filings to make each year
  • After tax, any money you make is yours!

Sound good? Well, it can be, especially if you’re working by yourself and aren’t that interested in expanding your business. But it does have two massive downsides - as you are the business, you’re liable for any debts, which puts at risk your personal assets, such as your home. And, as soon as you earn over £46,351, you’ll be taxed at 40%.

It’s why a lot of people opt to form a Limited Company. Yes, you’ll need to file more statutory documents each year; spend money on legally registering the company, and pay Corporation Tax, but on the upside, you’ll:

  • have less personal financial exposure
  • find some clients will be a lot happier giving you work, as Limited Companies tend to come across as more credible and professional
  • discover taking a salary and a dividend is one of the most tax efficient ways of paying yourself.

Whichever business structure you choose, you should always think long-term. Yes, you can change operating structures, but it’s good to get it right first time, as it’s one less future headache.

2. How to pay less tax as a sole trader

So, if you do decide to become a sole trader, what type of tax perks could you benefit from? Well for starters, expenses such as fuel, phone costs or the cost of running your office from your home can all be deducted from your profits, helping reduce your overall tax bill.

You can also claim the costs of running a car for business purposes, even if you also use it for personal excursions. There are different ways of calculating this, so we’re happy to chat through the options to help ensure you pay the least amount of tax.

And choose wisely when your accounting year ends. If you pick an accounting year-end earlier in the tax year, you’ll give yourself more time to pay the tax bill, which can also help with business planning.

If you’re just starting out why not give us a call? We work with a wide range of sole traders based in Tring and the surrounding areas, so have a lot of experience of making sure tax bills are as small as possible.

Run a limited company? Then you might be interested in this article on reducing your Corporation Tax bill.

3. Easy ways to reduce your income tax

You may think you’re on top of everything, but have you checked your tax code recently, or made sure you haven’t got any overpaid taxes to reclaim?

At Palmers, we know life sometimes gets in the way, which is why our accountancy services will ensure you pay as little income tax as possible. We’ll make sure you’re claiming the right tax credits; advise you on marriage allowance and explain how putting money into a pension can help you in the long run. In fact, if you’re a business owner with a limited company, you might be interested in this article onbuilding a pension pot.

And, of course, one of the easiest ways of making sure you waste as little money as possible is by making sure your self-assessment tax return is submitted by 31st January 2020. Miss the deadline and you’ll automatically get a £100 fine, even if you don’t owe any tax! We’ll ensure everything is done properly and on time, so if you’re still trying to get things sorted out, give us a call.

Need more advice? Then, get in touch with your friendly tax accountant, Tring

Here at Palmers, we find nothing more rewarding than helping business owners save money which is why we offer a full range of tax services. Whether you need help setting up tax efficient employee incentive schemes or advice on how to cut your tax bill, we can most definitely help.

If you’re interested in finding out how we can help you with your accounts and tax or want to learn more about our full range of accountancy services, please get in touch. We would love to discuss your requirements.