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Great Guy

reducing tax for self employed

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There seem to be a fair amount of self employed here. I thought it might be an idea to swap tax tips?

I'm by no means a tax expert but here are some things that you could consider:

1. Pay yourself a minimal wage and a large dividend (ok, I know we all know this).

2. Pay wife/ mistress a wage & dividends (yeah, I'm really the font of all tax wisdom).

3. Contribute to pension directly from company to avoid corporation tax ( I only found out about this a few months back...)

4. A lot of hotels have loyalty schemes where you can pay extra to get extra points. Maybe when you're away on business pay for extra points (tax deductible) then use them for holiday accommodation?

As I said, I'm no tax accountant. Feel free to rip my ideas to shreds or add fresh ideas.

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Check out the Flat Rate VAT scheme, whereby you may be able to charge customers 20% VAT but only pay HMRC 10%-12% (depends on sector). Doesn't work if you're just a service business any more after this year's changes but if your goods purchases are over 2% of sales it might be worth doing. Downside is you can't reclaim VAT on purchases so there's a sweet spot where this makes sense.

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Technically you're not supposed to do the 'collect points / cashbacks' -- they'd all be a taxable benefit.  (Of course, you might decide that hmrc wouldn't find out, but it is tax evasion rather than avoidance).

The other 'obvious' one is to buy stuff you want on the company that could be used by the company even if you don't actually need it for the company.  Phones, computers, printers (& consumables), cameras, bicycles, tools, etc, etc.  Obviously, you might not want to sail too close to the wind here (eg, I wouldn't buy a new TV for the company and then shove it in my living room, even if I might have used it in the office.  I'm sure many would, though).

There is also lunches (many, many business/working lunches) and the Christmas party, where you might like to take the employees (=wife / mistress) out to dinner or to a 'team building exercise'.

The 'paying wife/mistress' thing can be a bit of a pain right now, as you have to sort out a pension for all employees.  Even if they opt out of that sort of thing, you've still got to set up a pension provision for the company and then give the employee all information they require to make an informed decision, and then get them to opt out with the pension provider.  You can't just say 'oh, they don't want a pension'.  Sure, this doesn't apply to directors, but perhaps you don't want the mistress to be a director...  It is an absolute pain for the employees < 5 type of company.

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As they say, "the only difference between tax avoidance and tax evasion is a good lawyer"

Unless you are earning over £250k a year most of the schemes used by the z-listers aren't really feasible as you'll pay very large fees to the people setting them up, which will cancel out any savings. Don't forget that ISAs are tax free.

I'd say the best way to avoid paying tax nowdays for the small guy is to do 25% of jobs as cash in hand or accept 25% of payments via PayPal if online, and set it up under a different name and account. This is very easy and possible with a bit of, well, deception.

There are loads of very easy ways to avoid corporation tax altogether, personal income tax is much harder.

 

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If you've got one or more rugrats, you can claim childcare vouchers. Warning A. My accountant was crap on this subject B. online help was naff too.

Eventually I figured out that it was dead simple: my Ltd pushed some money (there's a limit that I can't remember) to the nursery every month, and we (as parents) paid the balance. So of course there was a tax saving. And forget all the ball rocks online about having to print actual vouchers.

Ps the vouchers are for more than just the nursery - stuff like after-school arts activities, sports, etc are covered.

PPS IIRC the saving was about £50/month - not a lot, but worth doing.

Edited by DeepLurker

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1 hour ago, Great Guy said:

There seem to be a fair amount of self employed here. I thought it might be an idea to swap tax tips?

I'm by no means a tax expert but here are some things that you could consider:

1. Pay yourself a minimal wage and a large dividend (ok, I know we all know this).

2. Pay wife/ mistress a wage & dividends (yeah, I'm really the font of all tax wisdom).

3. Contribute to pension directly from company to avoid corporation tax ( I only found out about this a few months back...)

4. A lot of hotels have loyalty schemes where you can pay extra to get extra points. Maybe when you're away on business pay for extra points (tax deductible) then use them for holiday accommodation?

As I said, I'm no tax accountant. Feel free to rip my ideas to shreds or add fresh ideas.


You seem to be confusing self employment with running a ltd company. 

S/E - everything you earn after tax/expenses is your wage. 
 

And I think nulabour made it illegal to give tax advice unless you are qualified.

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I'm considering going Ltd instead of my current sole trader status. Can anyone who went through this give me an idea how much it cost them in accountant fees to do the transfer. It would basically be the company assuming all my business assets, and setting up payroll just for myself. I have the Ltd name already as a dormant company.

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I'm a sole trader and have not done much to limit the amount of tax. I collect receipts for everything, used to put bus fares to and from my workshop and to and from customers/suppliers. I was told though, that only fares going to and from a customers/suppliers were tax deductable, not ones taking me to/from my normal place of work. I think that's shit, it's a cost which is incurred as a result of me running my business. I was at one point going to put a haircut through, nothing fancy, just a £9 one, ended up not but the same logic could apply. I could say I would be fine being long haired but have to get it cut as I am customer facing sometimes....

My wife does office admin so at some point the plan will be to start paying her, that way we will be making use of each of our tax allowances, and she will be getting paid for working!

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Just now, Carl Fimble said:

I'm a sole trader and have not done much to limit the amount of tax. I collect receipts for everything, used to put bus fares to and from my workshop and to and from customers/suppliers. I was told though, that only fares going to and from a customers/suppliers were tax deductable, not ones taking me to/from my normal place of work. I think that's shit, it's a cost which is incurred as a result of me running my business. I was at one point going to put a haircut through, nothing fancy, just a £9 one, ended up not but the same logic could apply. I could say I would be fine being long haired but have to get it cut as I am customer facing sometimes....

Someone I know has set up a dog grooming business and includes all his personal grooming receipts in. His argument is that it would be bad business to be a scruffy arse whilst grooming dogs. 
No idea how much of it will raise the tax man's eyebrows! 

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3 minutes ago, Reebo said:

I'm considering going Ltd instead of my current sole trader status. Can anyone who went through this give me an idea how much it cost them in accountant fees to do the transfer. It would basically be the company assuming all my business assets, and setting up payroll just for myself. I have the Ltd name already as a dormant company.

I would be interested to hear peoples views on this too. 

 

Even though I'm nowhere near it I worry about the VAT threshold, most of my turnover is labour rather than materials so I don't think it would be good for me or my customers. I'm unsurprisingly not keen on being a tax collector for the gubbermint!

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2 minutes ago, sarahbell said:

Someone I know has set up a dog grooming business and includes all his personal grooming receipts in. His argument is that it would be bad business to be a scruffy arse whilst grooming dogs. 
No idea how much of it will raise the tax man's eyebrows! 

Ha! Everything is going in now, haircuts and all sorts!

I buy a wide range or weird things for my work and so a couple of wee bits here would be justifiable, and could be bought by the business and not me.

I don't know if anyone knows how a van (£2-4k) would best be put through the books as a sole trader, I was just gonna put the whole coat of the van in my expenses column in one year. Hoping to be able to buy a van in a few months, awfully excited! Will start a thread when I'm near to having the pennies.

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3 minutes ago, Carl Fimble said:

I would be interested to hear peoples views on this too. 

 

Even though I'm nowhere near it I worry about the VAT threshold, most of my turnover is labour rather than materials so I don't think it would be good for me or my customers. I'm unsurprisingly not keen on being a tax collector for the gubbermint!

My business is similar, most of my expenses are fuel for the machinery, and the machinery themselves, including van. Everything else is labour.

I'm looking for more business to business work, so I have to think that a Ltd company looks better to other companies.

 

1 minute ago, Carl Fimble said:

Ha! Everything is going in now, haircuts and all sorts!

I buy a wide range or weird things for my work and so a couple of wee bits here would be justifiable, and could be bought by the business and not me.

I don't know if anyone knows how a van (£2-4k) would best be put through the books as a sole trader, I was just gonna put the whole coat of the van in my expenses column in one year. Hoping to be able to buy a van in a few months, awfully excited! Will start a thread when I'm near to having the pennies.

Yes you can put a van though in one year using the annual investment allowance.

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3 minutes ago, Reebo said:

My business is similar, most of my expenses are fuel for the machinery, and the machinery themselves, including van. Everything else is labour.

I'm looking for more business to business work, so I have to think that a Ltd company looks better to other companies.

 

Yes you can put a van though in one year using the annual investment allowance.

Ah, thanks.

 

I try to avoid working for companies but have only once been asked what would happen if I died during a job that was a company (well, a committee anyway) rather than a private individual. I think in some cases people would be less concerned if they were dealing with a seperate entity like a LTD company, especially with lengthy/big contracts. Most of my work consists of small one off jobs.

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The dividend tax has added another nail into the small Limited Company coffin. In 2005 we were getting the first 10k of company profits tax free! They seem to have done everything in reverse - chuck tax incentives around when they weren't needed and take them away and add more tax just when conditions have worsened.

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36 minutes ago, Carl Fimble said:

I'm a sole trader and have not done much to limit the amount of tax. I collect receipts for everything, used to put bus fares to and from my workshop and to and from customers/suppliers. I was told though, that only fares going to and from a customers/suppliers were tax deductable, not ones taking me to/from my normal place of work. I think that's shit, it's a cost which is incurred as a result of me running my business. I was at one point going to put a haircut through, nothing fancy, just a £9 one, ended up not but the same logic could apply. I could say I would be fine being long haired but have to get it cut as I am customer facing sometimes....

My wife does office admin so at some point the plan will be to start paying her, that way we will be making use of each of our tax allowances, and she will be getting paid for working!

Could you get a weekly bus pass that includes getting to your customers and normal commuting?

Do you give your wife money for housekeeping? It would seem sensible to pay her a wage rather than give her money out of taxed income.

PS £9 for a haircut seems a lot to me!!

Lol, I remember I gave myself a haircut with some clippers and the guard fell off... I had to give myself a skinhead and I looked a tit in work :(

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2 hours ago, DeepLurker said:

If you've got one or more rugrats, you can claim childcare vouchers. Warning A. My accountant was crap on this subject B. online help was naff too.

This one is simple. Get the business to sign up with something like kiddivouchers. You can push (as a standard tax payer) £250 free of tax each month into the scheme and use it to pay for shcool, after school clubs etc.

If your wife is an employee as well, you can double that - so that is £6k per year tax free childcare.

1 hour ago, sarahbell said:

Someone I know has set up a dog grooming business and includes all his personal grooming receipts in. His argument is that it would be bad business to be a scruffy arse whilst grooming dogs. 

Definite no-no. A Barrister tried this, claiming she would never buy her work suits for personal use. She lost. Don't try this one.

 

54 minutes ago, Reebo said:

Yes you can put a van though in one year using the annual investment allowance.

Are you sure? I would expect the van to be treated as a fixed asset, and therefore only allowable at 25% of the value each year.

Also, you will need to keep a log of personal and business use - unless you have a second vehicle in which case you could probably claim the van was 100% business.

  

1 hour ago, Carl Fimble said:

My wife does office admin so at some point the plan will be to start paying her, that way we will be making use of each of our tax allowances, and she will be getting paid for working!

If she does the admin already, you could start paying her now - except you then have a lot of ballache with paye and pensions. Probably not worth the hassle. Does she have another job - if not, you could save a bit by using the transferable tax allowance.

As an aside, this is the one instance where renting a house is better than owning. If you own, you can normally only claim a small amount for use of home as office. If you rent, you can calculate the percentage of floorspace you have designated as office and claim that proportion of the rent. We legitimately claim 50% of our rent - but the office / workshop is half the house!

Non of this is advice, apart from don't take tax advice from unknown blokes in pubs or on websites. 

Edited by Cunning Plan

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38 minutes ago, Cunning Plan said:

If she does the admin already, you could start paying her now - except you then have a lot of ballache with paye and pensions. Probably not worth the hassle. Does she have another job - if not, you could save a bit by using the transferable tax allowance.


If you're limited you can both be directors -  you can sign away your pension rights. But remember if she divorces you then she'd have half your company.

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1 hour ago, Carl Fimble said:

I would be interested to hear peoples views on this too. 

 

Even though I'm nowhere near it I worry about the VAT threshold, most of my turnover is labour rather than materials so I don't think it would be good for me or my customers. I'm unsurprisingly not keen on being a tax collector for the gubbermint!

If your customers are VAT registered then you would be the opposite. Just charge the same fee with VAT on top (customer can claim it back) and you can claim on some expenses. 

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39 minutes ago, Cunning Plan said:

If she does the admin already, you could start paying her now - except you then have a lot of ballache with paye and pensions. Probably not worth the hassle. Does she have another job - if not, you could save a bit by using the transferable tax allowance.

As an aside, this is the one instance where renting a house is better than owning. If you own, you can normally only claim a small amount for use of home as office. If you rent, you can calculate the percentage of floorspace you have designated as office and claim that proportion of the rent. We legitimately claim 50% of our rent - but the office / workshop is half the house!

Non of this is advice, apart from don't take tax advice from unknown blokes in pubs or on websites. 

She is already doing the admin bit the plan was to just aub contact that work to her rather than fannying about with all that employee stuff. So she just starts a business and invoices me each month. She hasn't got another job, aside from looking after the boys and the house.

I haven't been claiming a percentage of the (owned, by the bank, or at least half of it is anyway!) house as office use.

Thought of using the garage as a workshop and imagined just paying her rent for it, the mortgage and house is in her name, wondered if that might be tax free at her end under that rent a room scheme?

Thank you for the words you posted, I nearly described them as advice, they are not of course.

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4 minutes ago, The Generation Game said:

If your customers are VAT registered then you would be the opposite. Just charge the same fee with VAT on top (customer can claim it back) and you can claim on some expenses. 

No, almost all my customers are private individuals, maybe ten percent or less are companies or organisations.

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12 minutes ago, sarahbell said:


If you're limited you can both be directors -  you can sign away your pension rights. But remember if she divorces you then she'd have half your company.

You can set up A and B shares, different ownership rules and dividend rules if you are worried about the divorce.

6 minutes ago, Carl Fimble said:

She hasn't got another job, aside from looking after the boys and the house.

So definitely the transferable personal allowance scheme to look at - I think you can backdate it a year as well.

7 minutes ago, Carl Fimble said:

So she just starts a business and invoices me each month.

If you are her only client that may well be open to question.

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