To some self-employed tradesmen, the idea of keeping a few extra quid in their pocket rather than handing it over to Mr Taxman is a bit, well – you know – dodgy.
Not that it has to be.
Far from the kind of sly backhanders and shady dealings some might have in mind, many of the techniques, tools, and strategies you can use to avoid overpaying tax are perfectly legal and legit. Today, we look at some of the more common and practical ways that you can save money on your next tax bill and keep more of your hard-earned money in your wallet.
Make sure you’re claiming for all your expenses
Most self-employed tradesmen are pretty on the ball when it comes to claiming for equipment, materials and other essentials like fuel and vehicle maintenance. The truth, however, is that those expenses are just a few of the things you should be claiming for.
The cost of your website and any advertising you do are also allowable business expenses, as are protective clothing and uniforms, your tradesman’s insurance, and even subscriptions to trade journals.
HMRC has a helpful guide detailing exactly what you can and can’t claim for as a self-employed tradesman. It’s worth checking this out and making sure you’re claiming for everything you’re allowed.
Keep on top of the books
As obvious as it might sound, regular bookkeeping can go along way to ensuring you pay no more than your fair share of tax. Let things lapse, lose receipts, or let your entire system fall into disarray and you run the risk of not only missing payments but having to come up with rough figures and estimates that could lead you to pay more than you need.
If you struggle to keep on top things, outsourcing the work to a bookkeeper might be a good idea, especially when you claim the cost of these services in your expenses.
Get the family involved
One way to keep on top of the books without paying out to somebody else is to simply have your partner or someone else in the family do it for you. Everyone within your family who is eligible to work has a tax-free personal allowance that, for this tax year (2018/2019), stands at £11,850.
That means you could pay your partner up to £11,850 to work on your books or perform other services within your organisation and it would be tax-free to them and an allowable business expense for you. Remember, however, you’ll have to be able to prove that you’re actually making the payment and that the work is being done.
Build up pension pots for your family business
The personal allowance doesn’t end with salary payments. If your partner – or even your children – get involved in the business in some way, you can also build up a pension fund for them. Payments into pension funds can be offset against income tax and are exempt from National Insurance, saving you even further.
Keep earnings under £100,000
HMRC says that for every £2 that you earn over the £100,000 threshold, your personal allowance is reduced by £1. That means that if you earn £123,700, your tax-free allowance is basically nothing. You also then get taxed at a higher rate on those earnings, causing even bigger losses.
The good news is that you can use some of the ideas above, such as employing family members, as well as gift aid payments and other methods, to keep your earnings from smashing through that threshold.
Aim for tax-free cash
If your trade business is going so well that you find yourself as a higher rate taxpayer, you’re going to find it easier to keep your cash tax-free by using ISAs and gifting any surplus income to a family member, rather than relying on tax-heavy interest rates.