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Below is a selection of our favourite tips to help you save tax and any potential problems:
HMRC may turn up on your doorstep for a business records check. Our advice is to tell them to return when they have an appointment. They have no right to enter your premises without your authority. Contact us immediately to prepare for the meeting.
Business Records – Keep some records! – Making Tax Digital is happening – 2018 for sole traders and others following closely behind – we would recommend Quickbooks online.
IR 35 This is a nasty piece of legislation that can catch the unwary (was designed for IT contractors but can now apply to many service companies) There are many considerations but the main things that should help your case are as follows:
Appear to be genuinely self-employed. In your contract, you should only get paid for when you work and you should not be entitled to any notice period on termination (significant case law here) If you have the right to substitute yourself with someone of similar qualifications, this can help greatly.
Update on IR 35 Following the last budget, one of the areas that HMRC have stated they will be looking at is the one man service company. They have stated that they will be tightening up the rules on individuals who work through their own companies for an end client (perhaps through an agency) and who are really employees in disguise. This is somewhat ironic, as various government officials have been reported in the national press as having been successfully working through their own limited companies and enjoying the tax benefits that this gives. Nevertheless, to ensure that you don’t fall foul of the regulations (IR35), I am listing out below some pointers so that you can retain the beneficial tax treatment that you currently receive.
Ensure that that you appear to be genuinely freelance and not part of the workforce. Make sure the end client actually knows that you are freelance. Your contract is important – ensure that it is a freelance type contract. If you are not sure, let us take a look at it.. One of the most important factors is to be paid for the work you do (and only the work you do). For example, it is best not to be entitled to any notice period, holiday or sickness pay. very important. You should be able to work from home if need be. You should have a suitably equipped home office and computer and office equipment that you use for your work. Having more than one client can help. Shorter contracts are better than long contracts. You should have your own website. Your contract should have a right of substitution clause in it. This is not always possible but is a useful clause. That is, should you be unable to do the work required, you can put forward a suitably qualified replacement, employed by your company, to carry out the work (subject to the end client approving the person). It is useful to have this understanding even if it never actually is used. Many specialist contractors are so specialist, that HMRC can never argue that they are controlled in what they do by their client. This can be a very good argument.
Since April 2017 Public Sector Contractors fall within IR 35 and their status since then has been determined by the end client/agency. Following the 2017 budget, HMRC are reviewing whether to roll this out to the Private Sector.
Working Offshore Many ex Armed Forces people are going into Boat Security. Generally speaking you can get tax exemption if you do a 1 year contract and do not return home for more than half the time. National insurance can be an issue. You cannot claim the tax exemption by being a sole-trader; Many people will come unstuck here.The best situation is to be employed by a foreign employer. This is rare, but if the chance is there, take it, as you should be able to avoid UK tax and NI. More likely, you will need your own company and be contracted by a Security firm or an agency. Use of your spouse, national insurance holiday relief and seafarers exemption, should keep your deductions to a minimum.
Small Limited companies Extract your money as follows: A monthly salary (and maybe your spouse) at about £8K per year- you can get free NIC credits without paying anything. Monthly expenses (including mileage, but chargeable and non-rechargeable) Dividends – Consider gifting shares to your spouse. Alphabet shares can be very useful – this can keep you both within the basic tax rates Remember to leave enough money in the company account for the corporation tax each time you pay a dividend, also prepare a dividend voucher and a board minute. If you fail to do this properly, you risk the dividends being taxed as salary – we have templates you can have. Mobile phones – get these put in the company name – tax free perks are few are far between.
Company or LLP? – talk to us to discuss the best option – times are changing and limited companies are becoming less popular.
Using your home for business Many sole traders and companies work from home. You can claim a proportion of your household bills, including mortgage or rent against tax. Speak to us about this very valuable relief. It is not uncommon to be able to claim £1500 a year against tax.
Mileage Consider mileage claims as opposed to a company car – unless your car is CO2 friendly, this will be the better option. You can even reclaim VAT on part of the mileage.
Starting in business? Whatever medium of business you use, sole trader, partnership or limited, computers, IPADs office table and chairs that you own before the business can be claimed in the business and allowances claimed.
Registering for vat? Assets owned before registration can often be claimed for the VAT recovery – PCs. chairs, desks, etc. Expenses incurred 6 months prior to registration may also be claimable. You can even claim back VAT for items on hand that you bought before the business was incorporated (if used in the new business).
VAT- flat rate scheme – a great scheme, currently unfairly being phased out by HMRC.
Spouse wages. Most self employed with a non-working spouse should be encouraged to consider paying them a wage. The spouse will need to do something for the business, answer calls, book appointments, keep the books. The wage could range from say £20 a week, to £150 a week. You have up to 9 months after the end of the accounting period to pay a bonus, if nothing was paid in the year. Ensure your spouse actually gets the wages!