Here at Tax Agility we like to give away the basics for free.
While other accountants may be comfortable charging you for literally everything (and anything) under the sun, we believe that we all benefit when we’re better educated about the choices we hold and the options available to us.
Top 5 tips for self-employed contractors
For this reason, below we’ve put together our top five tax planning tips for self-employed contractors. These may not all apply to you, but the ones that do will benefit you no end.
1) Take IR35 Seriously
One of the most beneficial tips we can give to any self-employed contractor who is serious about ensuring that they only pay the tax they owe is to take IR35 seriously.
We’ve written a lot about IR35 in the past, but the main thing you need to know is that if HM Revenue and Customs (HMRC) believes you to be operating within IR35, any other tax planning methods you follow will become either impossible or much more difficult to implement.
2) Becoming a Limited (Ltd) Company
Assuming you don’t fall inside IR35, becoming a Limited company is a great way to pay less tax while also growing your business in the eyes of your customers.
Unfortunately, becoming a Limited company brings with it a number of responsibilities and administrative necessities that non-company owners don’t need to fulfil. So it’s a trade off; one you’ll have to put a lot of thought into before deciding one way or another.
3) Consider the VAT Flat Rate Scheme
Again something we’ve discussed in depth in the past, the Value Added Tax (VAT) Flat Rate Scheme allows contractors who have an annual turnover of £150,000 or under (not including VAT) to pay a fixed amount of VAT based on your turnover, instead of having to spend the time adding up every taxable purchase to produce an exact, taxable figure.
As with most of the tips in this list, the VAT Flat Rate Scheme isn’t for everyone; speak with your accountant to see if it’s the right option for you.
4) Take Advantage of the Annual Investment Allowance (AIA)
The AIA, which is currently set at £200,000 for 2016 (the calendar year, not tax year), allows you to deduct the full value of a qualifying item from your contractor profits before tax.
There are a large number of exceptions here, including cars and any item that you previously owned before using it for your contractor work. But it’s still a reasonable allowance all the same, and should be taken advantage of.
5) Submit Everything on Time
Just as how not taking IR35 seriously makes other forms of tax planning difficult, not summiting your tax returns on time will also harm your other tax planning efforts due to the fines you’ll receive.
Keep in mind, when your accountant submits your tax returns on your behalf they’re going to need all of the necessary data and information from you well in advance of the filing date, so help them to help you!
Experienced Accountants for Self-Employed Contractors
To speak with a professional accountant to discuss more tax planning tips for self-employed contractors like you, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.