Tax Saving Guide by an Accountant for Self-Employed

As an accountant for self-employed in UK the most common question that I come across is “how do I reduce my tax burden?” In other words, how can tax savings be done for a person who is self-employed. Well, my answer to the query is that right knowledge about the prevailing law can help you reduce your tax burden by a considerable amount. Here are my top 5 picks for a self-employed:

Claim back your expenses

As a self-employed sole trader, your taxation is similar to that of a limited company. HMRC gives you the opportunity to claim back any expenses that was incurred by you for trading purpose. However, be sure of the fact that the concerned expenses fall into the permissible category as laid by HMRC. To explain this point clearly lets take an example- Suppose you are self-employed and you have incurred £40 towards your business phone. Now, HMRC may offer deductions upto £50 for tax payers, since your actual expense was only £40, the amount that you can claim as deduction will be £40.

Some of the most commonly availed expenses are:

  • Office cost, such as phone bills
  • Clothing expenses, such as cost incurred on uniforms
  • Staff costs, such as salaries paid to employees
  • Advertising cost, such as cost of website development & maintenance

Travel expenses for business

A common way of tax savings is to claim deductions for travel expenses incurred for business. This means that cost of accommodation and travel becomes non-taxable for computation of self-assessment. Nonetheless, HMRC reserves the power to question you over expenses made towards stay in super luxurious hotels. On the other hand, this doesn’t mean that you would be staying in a shabby cottage.

Some of the most commonly availed expenses are:

  • Expenses incurred on fuel for vehicles(for official purpose only)
  • Parking
  • Commuting expenses such as train fare or bus fare (beside between home and work)
  • Flight tickets (for official purpose only)
  • Hotel rooms(for official purpose only)
  • Meals on overnight business trips

Financial charges

From the perspective of business, dealing with bank charges is a common practice. This is why expenses made on credit card charges, bank overdrafts, interest on loan, etc., fall into the category of exemption for the purpose of computation towards tax liability. However, any payment made towards repayment of principal amount for loan, etc., doesn’t fall under the same category. This can be descriptively explained over a cup of coffee.

Vehicle expense

There can be two cases when it comes to vehicle – car (or goods vehicle) and bike. Under both cases, if the business pays for transportation, then the same is eligible for a deduction. You can either add actual cost of running the vehicle or use flat rate for mileage calculation.In case of a car (or goods vehicle) the applicable rate for first 10,000 miles is 45p/mile, post which 25p is allowed on every mile.If it is a bike the applicable rate is 24p, irrespective of the distance.

VehicleApplicable rate with simplified expense
Car & Goods Vehicle (first 10,000 miles)45p/mile
Car & Goods Vehicle (from 10,000 miles & above)25p/mile
Bike (irrespective of the distance)24p/mile

Payment made to your accountant

Though most self-employed hesitate in hiring an accountant as they consider it to be expensive, the truth is that you can claim this fee as a deduction when it comes toit can help you in tax savings. Just like a limited company, you too will be able to claim accountant’s fee as a deduction from your taxable income.

There are many other avenues which I am happy to discuss with you as per your business requirement and do an evaluation, allowing you to determine the best course of action for your company. I will look into the most advantageous tax solutions for you and assist you in making informed business decisions. Drop me a mail at [email protected] or call: +44 3301331114 to fix an appointment.