Hey, nobody likes paying more tax than they have to, right? That’s why it’s key to know the everyday tricks that can help cut down your tax bills in a legit way.
As individuals and business owners, we’re swimming in a sea of tax rates, thresholds, and rules. Having a solid grasp of the tax basics can save you from overfeeding HMRC unnecessarily.
Quick word of caution: Tax stuff can get pretty hairy. Always loop in a professional accountant before diving into any tax planning.
Now, let’s break down the tax basics:
Income Tax
You know that chunk of your paycheck that disappears into the tax void? That’s Income Tax. Depending on your earnings, you’ll get slapped with rates ranging from 20% to 45%. Ouch!
National Insurance
Another slice of your paycheck goes to National Insurance. It’s a tad trickier to calculate, but it’s basically another tax on your income. Employees and employers both chip in, helping fund goodies like NHS services and pensions.
VAT (Value Added Tax)
If your business rakes in £90k or more a year, you need to register for VAT. That means adding a little extra to your invoices – 20% extra, to be precise. But hey, you can also claw back some VAT on your business purchases, so it’s not all bad.
Corporation Tax
Got a limited company? Then you’re on the hook for Corporation Tax. It’s a percentage of your profits that you pay annually. The rate is currently 19%, but it jumps up once your profits hit £50k building up to 25% on profits over £250k.
Tips to be Tax-Savvy
Maximising your money while minimising your tax bill – now that’s the dream, right? Here’s how to do it like a boss:
Expense Everything You Can:
Keep track of every little business expense – travel, meals, tech stuff, you name it. Claiming legal expenses can slash your tax bill big time.
Think mileage, meals on the go, hotel stays – if it’s all business, it’s tax-free. Just make sure it’s all above board.
Pay Yourself Up to Your Personal Allowance:
Dip into your Personal Allowance pot (usually around £12,570) to keep your income tax-free, you will however pay National Insurance on income above £9,100.
Payroll above your allowance, once you start raking in more than your Personal Allowance, the taxman comes knocking. Brace yourself for Income Tax and National Insurance deductions.
Divvy Up Those Dividends:
When it’s time to withdraw, dividends are your friend. They come after Corporation Tax, but they’re still a sweet, tax-efficient option. Opt for dividends over a salary paycheck to save on taxes. Trust us, your wallet will thank you.
It’s pretty common for a spouse to hold shares and receive dividends when they’re paid out. The perk? It could let you (as a couple) tap into any leftover basic rate tax allowances and distribute more between you at the lower rate of dividend tax.
Pension Perks:
Use business cash and contribute into a pension scheme and watch your tax bill shrink. It’s like magic, but better.
If you’re thinking about setting up a pension or tweaking your current setup, it’s wise to chat with an Independent Financial Advisor. They’re the experts in all things pensions, and they can give you tailored advice to suit your situation.
We’re here to help too! We’ll give your advisor all the info they need to steer you in the right direction. Together, we’ll make sure you’re set up for a comfy retirement.
Home Office Perks:
If your work mainly happens at your client’s place, but you use your home office now and then for business stuff, you can claim a little somethin’ somethin’ for those incidental home expenses – think £6 a week or £26 a month, adding up to a tidy £312 a year.
To make sure you don’t miss out on this sweet deal, set up a regular payment from your company account. Easy peasy! Then, just mark it as paid and voila – money saved.
No need to keep records of these expenses, so you can focus on the important stuff – like growing your business
We can help with a more detailed calculation if £6 a week doesn’t cover it!
VAT working for you?
Keep an eye on your VAT setup. Tweaking your VAT method can save you some serious dough. For instance, think about whether switching from the flat rate VAT to the standard or cash accounting scheme – or maybe the other way around – would be a better fit for you.
IR35 Dance:
Getting to grips with IR35 and steering clear of its grasp is a smart move for keeping your tax bill in check. Navigate IR35 like a pro to keep your tax burden low. It’s all about understanding the rules and snagging contracts that play nice.
Personal Perks:
Want to treat yourself or your team? Think health insurance, gym memberships – even a swanky company car. Just beware: the tax rules here can get murky, so chat with your accountant first.
Phew, that’s a lot to digest! But fear not, with a little expert advice from Accrue Accounting, you’ll be a tax-saving ninja in no time.
