Top Tax Tips For The Self-Employed (UK-Setting)

June 21, 2013 10:02 pm0 commentsViews: 44

By : Siobhan McBride

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Tax-2Working for oneself is becoming more appealing to most people who want to be in control of their financial situation.  With redundancies rife in this buoyant economic time, being self-employed is becoming a viable option. However, self-employment can have its downside when it comes to documenting the income and paying your taxes. If you’re thinking of going self-employed, here are some tips for you so you don’t get an unwanted bill from the tax man.

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Firstly, you need to decide on your business structure; you can be a sole trader, limited company or partnership.  Becoming a sole trader is the simplest way to be self-employed as accounting is simple and there are no registration fees.  However, you are liable for any costs that your business runs up.

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With a limited company structure, you can be able to keep your business separate from your personal affairs.  You can pay yourself a low salary and the rest of the money in dividends.  This is not evading tax but a legitimate way of being tax efficient.  By doing this, you won’t lose your entitlement to the state pension.  However as a limited company, accounting in accordance with tax requirements, can become more complex.

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With a limited company, there are a range of expenses which you can claim to reduce your tax bills, such as childcare vouchers and a pension scheme, which will save you more tax.  If you are currently claiming child benefit, you may be able to avoid this by leaving money above the threshold into your account.

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The last option is a partnership where two or more people want to own a company collectively.  When you opt into a partnership, you and your partners are jointly liable for any debts.

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Once you have decided which structure to go for, you’ll need to register with the HMRC (HM Revenue and Customs) as soon as possible.  If you don’t register within three months you’ll have to pay a £100 fine.

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National Insurance

As a self-employed person, you will probably pay Class 2 contributions which is around £2.70 per week.  But if your profits exceed £7,755, you’ll have to pay Class 4 contributions too.  In addition, you will also have to pay Class 1 contributions if you employ staff.  Yet, if you employ your spouse for example, you could make them a business partner which will save you having to pay Class 4 contributions.

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Capital Gains Tax

This is something that comes into effect if you’re selling your business or home and part of it has been used exclusively for business.  If your home was used solely for business then there is no CGT to pay.   However, an exclusive declaration of your home (where you state you’ve personally used part of it) will enable you to claim back costs against your tax including utility bills.  You can still claim back costs if you declare your home as solely business, but it is a more complex process which involves an assessment of the area used for business and the amount of time you’ve worked there.

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Keep Track of your expenses and paperwork

You need to keep track of all of your paperwork dating back for the last seven years else you could be landed with a hefty £3000 fine.  You’ll need to submit two documents – tax returns and an SA103 by the allotted deadline.

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Keep a record of your expenditure as this can be used to give you some tax relief. Utility bills, maintenance, travel and accommodation costs can all be claimed back if they are related to your business.

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This article was written by Siobhan McBride who writes on a range of financial related topics. She recommends looking at http://www.bernard-rogers.co.uk/ if you have any further tax related queries.

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