1. If you set up as a sole trader, you can claim against your profits for items used in your business even if you bought them before you began trading.
2. Think about incorporating your business – lower corporation tax rates may make it worthwhile to become a limited company, although recent changes have made this less attractive than previously.
3. The current capital allowance scheme (tax deductions that you can claim for spending on business equipment) allows you 100% allowance on the first £200,000 spent on eligible capital items. If you’re thinking about buying plant and machinery, committing to buy before your year-end can allow the entire cost against profit for that year.
4. Consider how you extract profits from the business. If you set up a limited company, paying a small salary up to your personal allowance and the rest as dividends could still save some tax and national insurance. It may also be beneficial to pay your spouse for the work they undertake, dependent upon their other income.
5. Put your mobile phone in the name of the business then all phone costs are tax deductible.
6. It’s usually best to run your own vehicle and claim mileage using HMRC authorised mileage rates. If you have a limited company, in most cases this will also avoid higher tax on company cars.
7. If you work from home you can claim a tax deduction to cover part of your home running costs. HMRC allows (a modest) £4/week without asking for any evidence. If you think the actual cost is higher (based on proportion of home used for work purposes) then a bigger claim may be made, but be prepared to justify it.
8. If you’re married or in a civil partnership, make the most of each personal allowance (£11,500 for 2017/18) and basic rate tax bands (£33,500 for 2017/18). It might be sensible to transfer income-producing assets (such as rental income) to a spouse to take advantage of their lower tax rates.
9. Make contributions into a pension scheme. Pension contributions tend to be deductible expenses for the company, and individuals do not pay tax on the benefit of having the company pay them. If your net income for 2017/18 is more than £100,000, your personal allowance (£11,500 for 2017/18) will be reduced by £1 for each £2 of income in excess of £100,000. Consider making individual pension contributions or a transfer of income-producing investments to a spouse to make the most of personal allowances.
10. If you employ people, use a salary sacrifice scheme to pay for employees’ childcare costs. Childcare voucher schemes are tax-free for the employee (there are some restrictions) and the business doesn’t have to pay employer’s National Insurance.
For more tax saving advice please do not hesitate to get in touch with our experts.