When you’re self-employed, tax is an inevitable part of life, but there are steps you can take to minimise the amount you pay. We’re sharing some of our insight to help you make the most of your money and pay less through your limited company.
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 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?
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 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%.
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 to find out if they are specialists in the contractor market.
Let’s 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.
There are special rules which govern the use of childcare 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 help. 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.
If you do choose to set up a limited company, which is exactly what our other 15,000 contractor and freelancer clients have done, you may like to chose SJD to help form your company.
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