It can be demoralising seeing your hard-earned cash taken by the taxman, but did you know there are actually lots of different ways in which you can keep more of your money?
Let's have a look at some of the totally legal ways you can save on tax as a small business owner.
Tax credits are basically payments that enable you to increase your income.
If you work a particular number of hours a week but still earn below a certain threshold, you could be eligible for working tax credits. Your age is also a factor – you must be over 16, or over 25 if you do not have any children. If you have a disability, you may also qualify. HMRC’s questionnaire can help you find out whether you’re eligible.
You can also claim child tax credits if you’re responsible for taking care of a child or young person. These work in the same way as working tax credits, topping up your income.
It’s far too easy to end up on the wrong tax code. In most instances, HMRC will refund you if you’ve paid too much money to the government, but this can often take months (or even years) to materialise.
If you’re really unlucky, you could end up paying too little tax. That might sound good to begin with, but it won’t feel so nice when HMRC come after you for the money they’re owed. And, typically, the taxman is much faster when it comes to chasing people than offering refunds.
Avoid all the back-and-forth by ensuring you’re on the correct tax code from the start. Check the number on your payslip and confirm that this is in line with your earnings.
Throughout 2018/19, the limit for a tax-free cash ISA is a huge £20,000. This means you can save thousands of pounds in a safe place without the taxman taking any from you.
Stocks and shares ISAs also have a limit of £20,000 with no tax imposed. You can choose to invest in your cash or stocks and shares, or divide money between the two.
Even savings are taxable. However, the good news is that there’s been a freeze on the amount of money HMRC will take from savings in 2018/19. The rates remain the same as they were for the previous year: basic-rate taxpayers can receive £1,000 of interest tax-free, whilst higher-rate taxpayers can receive £500 without the taxman taking his share.
Tax on savings isn’t deducted there and then, either. You need to pay it yourself with a Self Assessment form, or alternatively have your tax code adjusted so that it comes out automatically.
If you’re employed, it’s likely you have a pension scheme in place. According to new rules and regulations, any payments into your retirement fund can be made before any tax is charged – and your employer will match these with a contribution of their own.
The government will also make their own contribution (so long as pension payments are taken from your salary before tax, or you are self-employed and contribute to a scheme), meaning you’ll have a nice financial cushion to fall back on for your golden years.
So, the moral of the story is: Don’t simply accept what it says on your payslip or just assume you have to pay the same amount of tax as another person in the same occupation.
Taking advantage of tax software is one way to make your life easier – as all the calculations will be made for you. This way, you’ll pay the right amount of tax and save wherever possible.
GoSimpleTax is a cloud-based app for Self Assessment tax return submission, verified by HMRC. The software is designed to help you save on tax and provide you with a suitable platform for submitting your returns correctly. Get in touch with their team for guidance.
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