Guide to paying less tax
Appoint an accountant
Yes of course we'd say this but we genuinely mean it, we'd like you to appoint us, but if not us then definitely think about appointing another accountant, it will save you money, time and worry, none of which you really need when just starting out contracting or going limited.
You are going to have lots of 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 accountant 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?
Go limited
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 everything you can claim?
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.
Don't be late
Pay your taxes on time to avoid all the nasty penalties – 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 initiative are available is equally difficult. The good news is that your accountant should be able to help you through this mine field. 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%.
Fit for purpose
Choose an accountant with relevant experience, if you're a contractor or freelancer is your accountant a Contractor expert? Managing the tax affair 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.
Pensions
Lets face it, it's a dull subject and anything you have to wait 30 years to receive if never going to be interesting but please speak to an IFA/pensions advisor about setting up a pension, or even a pension through your company if you're going limited. This way the company gets tax relief and it uses up some of the remaining funds in the company account in a very tax efficient way.
Child care vouchers
There are special rules which govern the use of child care vouchers which directors of companies and/or their company secretaries can make use of; these could save as much as £486 per month.
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 who are interested in providing savers with good rates of return, albeit lower than the good old days but every little helps. Also using a bank that doesn’t charge for business banking will help.
We hope this little guide helps, unfortunately there aren't any special 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 expert in their field, experienced knowledgeable accountant, as a matter of fact these are the only accountants we employ at SJD Accountancy.
For further advice please call our New Client Services helpdesk on 0500 152 500 or email jaime.thorpe@sjdaccountancy.com.
If you do choose to set up a limited company, which is exactly what our other 10,000 contractor and freelancer clients have done, you may like to chose SJD to help form your company. Last year alone, more than 3,000 contractors formed their limited company on our website.
If you wish to appoint us as your accountants immediately, the quickest and easiest way to do so is by accessing our Client Agreement Form
If you are undecided about whether to go limited or use an umbrella company please click here: Take home pay through a limited or umbrella company – The differences.
SJD Accountancy is the UK's largest specialist provider of fixed fee, limited company accountancy services to contractors and freelancers. We've been acting for clients across the UK since 1992 and have more than 10,000 already.
We are the only national specialist firm of accountants with offices in all major UK cities, so you’ll never be far from your accountant. SJD also has more qualified staff than any other firm in our market, with qualifications from the following major tax and accountancy bodies - ATII, ATT, ACCA, CA, ACA, FCCA, ACMA. You’ll also be pleased to know that we are one of the lowest priced as well. All of our clients receive:
• Free face-to-face meetings. This is another unique service, only SJD offers free face to face meetings - tax is complicated and sometimes only a meeting will do.
• Unlimited access to your own dedicated accountant. No call centres, no outsourcing, no automated call handling. Simply telephone, email or meet your own dedicated accountant face to face.
• Money back service guarantee. All your telephone calls and emails will be answered the same day or we will refund your monthly fee.
• Outstanding reputation. We have won more awards for customer service and accountancy excellence than any other firm in our market.
We offer an all inclusive low cost monthly package which includes completion of accounts, payroll bureau, dividends and corporation tax computations, personal taxation, free bookkeeping software, unlimited access to your accountant and all company returns.
All this for a fixed monthly fee of £95 plus VAT, which is one of the lowest prices in the market.
Appoint SJD Accountancy and never worry about your tax or accountancy affairs again!
You may also find the following pages, guides and case studies useful:
Take home pay calculator - How much could you be taking home
Contractor FAQ - All your frequently asked questions and their answers
First time Contracting or Freelancing? - A summary of the alternatives along with pros and cons
Step-by-step Guide to Contracting - Download a FREE copy of our guide
Limited or Umbrella? Can't decide? - We help you decide which is best for you
Take home pay case studies - Examples of contractors using limited and umbrella companies
Expenses Guide - Know exactly what you can claim
Umbrella company guide - Everything you ever wanted to know about umbrella company services
IR35 Guide - A great plain English guide to IR35
