Have you found yourself wondering how to pay less tax? Being self-employed, you want to maximise your take-home pay while staying compliant of HMRC regulations. The good news is – there are ways to do just that.
- Choose a limited company structure – it’s the most tax-efficient option.
- Opt into the Flat Rate VAT Scheme.
- Familiarise yourself with eligible contractor expense claims.
- Take advantage of government schemes and initiatives.
- Appoint a specialist contractor accountant.
- Explore your limited company pension options with an IFA.
- Keep a separate business banking account.
Looking to pay less tax?
Find out how to maximise your take-home pay and become a successful contractor in our free guide. Also covered in our guide is:
- Getting started – discover which business structure is best for you and how to get started.
- Your tax and financial obligations – all you need to know about your paying tax, filing accounts and what costs you offset.
- Making your business a success – learn how to grow your business, how to market yourself and to forecast for the future.
Any accountant will tell you going limited is without a doubt the most tax-efficient way to work. Our advice would be to steer clear of clever and technical offshore solutions, if you work in the UK, live in the UK, get paid in the UK then limited company formation is usually completed within 2 hours. There are substantial savings to your take-home pay by going limited, such as NI and VAT, for example, if you are a contractor on £200 per day you’ll save £9,000 per annum or if you’re on £600 a day you’ll save £20,000 per annum on NI contributions.
Think about the Flat Rate Vat Scheme
Are you on the Flat Rate VAT Scheme yet? Most contractors benefit from this and saving opportunities can be substantial – for example if you’re on a £200 per day contract you’ll add £1,500 extra per year to your bottom-line and with a daily rate of £600 you’ll add upwards of £4,500 extra per year (based on a 45 week year).
Do you know your eligible expense claims?
Remember you cannot claim for something you didn’t actually pay for in the first place, or can’t provide evidence of payment. You, not your accountant will be personally liable for any underpaid taxes, so make sure you take advice from experts in the contracting market. The HM Revenue and Customs ‘Expenses’ (480) booklet is 100 pages long so it’s no wonder that your head may be left spinning after reading it. Do your research, speak to an accountant or read our contractor expenses guide.
Pay on time
Avoid all the nasty penalties associated with late payments – you’ll soon get bored of paying penalties for being a few days late. Most penalties start off fairly small but over time penalties and interest charges soon mount up.
Government schemes and initiatives
Take advantage of government schemes and initiatives. Just like understanding what benefits are available can seem like quite a challenge, understanding what schemes and initiatives are available is equally difficult. The good news is that your accountant can help you through this minefield. For example, if you’ve been trading for over a year and have a legitimate reason for closing your company down, you might want to speak with an accountant about a special government tax relief scheme which could help reduce your tax liability down to as low as 10%.
Speak to a specialist
Chat to one of our contracting experts who can guide you on how to maximise your take-home pay.
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Fit for purpose
Is your accountant a contractor expert with relevant experience? Managing the tax affairs of Contractors and Freelancers is different from managing the accounts of the local engineering company. There is specific legislation that applies to contractors. Before appointing an accountant, find out if they are specialists in the contractor market.
Let’s face it, pension is a dull subject and anything you have to wait 30 years to receive is never going to be interesting. Speak to an IFA/pensions advisor about setting up a pension, and what limited company pension options are available through your limited company. Your company can get tax relief and use up some of the remaining funds in the company account in a very tax-efficient way.
Separate bank accounts
Don’t leave your business current bank account with a huge balance. Instead, move it over to a high-interest savings account. There are still a few banks that provide savers with good rates of return. You can enjoy even more financial freedom by using a bank that doesn’t charge for business banking.
Appoint a specialist accountant
Yes, of course we’d say this, but we genuinely mean it. We’d like you to appoint us, and if not us then you should definitely think about appointing another accountant. Having a dedicated accountant will save you money, time and worry, none of which you really need when just starting out contracting or going limited.
You will have many tax/money-related questions, such as:
- Amount to put aside per month for tax bills
- What type of taxes will I have to pay and when will I have to pay them?
- What expenses can I claim and how do expenses affect my take-home pay?
- Do I need to set up a business bank account and what happens if I don’t?
- Do I need public liability insurance or Professional indemnity? What could be at risk if I have a problem in a clients office?
- How do I keep track of money coming in and going out (your SJD tax expert will provide you with a simple spreadsheet to help you with this)
- How does VAT work? Who claims it, pays it and should I be on the flat rate scheme?
- Do I need a contract with the client?
- What’s the typical time to wait for payment and how and when do I invoice?
- Do I need to be concerned about IR35?
- What should I try and do before I start contracting or freelancing?
We hope this guide helps. Unfortunately, there aren’t any special or secret schemes that HM Revenue and Customs have told only one or two accountants. Paying less tax is possible, but only with the support of an experienced, knowledgeable accountant; as a matter of fact, these are the only accountants we employ at SJD Accountancy.
If you do choose to set up a limited company, which is exactly what our 15,000+ contractor and freelancer clients have done, you may like to chose SJD to help form your company.
The quickest, easiest way to appoint us as your accountants is by accessing our Client Agreement Form or phoning us on .
Are you still undecided about whether to go limited or use an umbrella company? Find out how your take home pay will differ through a limited or umbrella company.
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