- Ensure the personal circumstances and present situation of your subcontractors actually qualify as self employed and not employed. It may well do in your eyes but would it do so in the eyes of the HMRC tax inspector. Does your self employed workers qualify within the “six badges of trade”. Likewise, if you have any “subcontractors” working for you can it be shown that a contract for services exists.
Warning : It could be very costly if HMRC deems these are not subcontractors due to your business having total control, no financial risk to the “subcontractor”, no capital involved or equipment, no work performance or correction of work financial penalties to the subcontractors. You have exclusivity over the workers, you pay when not at work.
- Do not claim back travel or other expenses if you operate under an “umbrella scheme” through an employment agency.
- If you incorporate your Limited company you must ensure you have more than one client during the tax year. As HMRC could deem that the arrangement is an employed arrangement and you may be subject to paye.
- It may be more beneficial to claim motor expenses using a mileage basis than a receipt basis.
- Any disallowed expenditure shown must be added back to the profits. These may be personal expenses taken out of the business for example GOODS FOR OWN USE. An owner of a café could take food home or a garage mechanic cannot claim for parts used on his personal vehicle which he did not use for his business. A suit used for business would be disallowable or items such as glasses. These are qualified as disallowable as they are classed as personal. Cases of wine given to customers are a gift and disallowable.
- Self-Employment losses incurred in first year trading may be offset against tax paid during employment in that tax year. This is known as side-ways relief and the net result could be a tax repayment.
- Losses made in relation to rental property must be carried forward against the first available rental profits and cannot be against any other income.
- If a trading loss is incurred in the final year of trading, the loss incurred in the last 12 months of trading is to be set against the trading profits ( if any ) of the tax year in which the cessation occurs and the three previous tax years. This is known in tax law as Terminal Trade Loss Relief.
- A personal pension plan is an excellent way of reducing a tax liability as it increases the basic rate limit.
- Always ensure that statutory documents are filed on time as penalties for late submission of CT600’s, company accounts and personal tax returns SA100 can be severe. Daily penalties will arise in the event of a non-filing of a tax return.
- HMRC will impose late penalty fines on any tax which is not paid on time.
- If a partner, husband or spouse does not use up all their personal allowance an election may be made to transfer part of that allowance subject to certain conditions. This may result in a tax saving for the partner, husband or spouse who is the tax payer.
- Dividends are taxed from 6th April 2016 for basic rate taxpayers ( after an allowance of £5000 ). If the partner, husband or spouse has an active part in the business it may be beneficial to
Introduce them as a shareholder and thus use up their tax free allowance. In addition by sharing the split of the dividends it may result in less of the dividends being charged at a higher rate.
- In certain circumstances trading losses may be set against the capital gains and therefore reducing capital gains tax.
If you want more tax saving tips please read an article at Which.co.uk called 30 ways to save on tax – By Ian Robinson & this article called 10 tax-saving ideas for small business owners – By Simon Cox