London, 19.8.2014:
Ahead of tomorrow’s figures from the Office of National Statistics (ONS) on self-employed
workers in the UK, experts at leading wealth manager Brewin Dolphin warn that
many are not taking advantage of all the tax allowances they can, particularly
those ‘olderpreneurs’ who have become self-employed later in life.
“Being
self-employed can be great in terms of flexibility and freedom, but it is a
double-edged sword,” said Tim Walker, Head of Brewin
Dolphin in Exeter. “Employees who go freelance miss out on employee based
benefits such as life and health insurance and pensions, and many do not know
how to replace them. By maximising the tax savings from self-employment,
Britain’s new army of freelancers can maximise their income and ensure that
they are ready to have a happy retirement too. Freelancers shouldn’t have to
work ‘til they drop.”
Here are six tips for maximising
self-employment income and savings:
1.
Don’t forget your pension
Employers’
contributions to your pension fund abruptly cease when you leave the company,
so it is important not to stick your head in the sand over pension payments.
“The tax relief on your pension is still valuable, so set up your own pension as
soon as you can,” advises Tim Walker. Tax relief for
higher-rate taxpayers is 40% on pension contributions.
2.
Keep it in the family
If
another member of your family of working age is not using his or her full tax
allowance, employing them in the family business could help to save tax. “Their
salary would be an allowable expense to you, and would allow them to use the
current tax allowance of £10,000. “Admin and bookkeeping are popular ways of
employing a spouse or adult child,” says Tim Walker.
“Ensure that they are doing enough work to justify the salary you are paying
though, otherwise the taxman will take a very dim view.”
3.
Claim all of your expenses
You can
offset the cost of running your business against income to reduce your taxable
profit. There are full details here http://www.hmrc.gov.uk/factsheets/expenses-allowances.pdf
4.
Maximise your dividends
If you
open a limited company you can pay yourself dividends and salary, and an
accountant can help you to set the balance between these two forms of payment
at the most beneficial level, so that you do not pay too much National
Insurance. “Make sure you understand how this works before paying yourself from
your limited company,” counselled Tim Walker.
5.
Don’t get caught out by VAT
If your turnover of VAT taxable goods and
services supplied within the UK for the previous 12 months is more than the
current registration threshold of £81,000, or you expect it to go over that
figure in the next 30 days, you must register for VAT. Not doing so will leave
you with fines and a nasty bill from the taxman. “Registering for VAT can be
beneficial for tax purposes,” says Tim Walker.
If you
are VAT registered, you will have to charge VAT on your goods and services
(known as output tax). However, you will also be able to reclaim VAT that you
are charged by other businesses. This is known as input tax. As long as your
input tax exceeds your output tax in a given period, you will be able to
reclaim the difference from HMRC. Note that once you are registered for VAT
there are penalties for late filing and payment, as well as significant amounts
of paperwork; but failing to register is one of the most common causes of new
business failures.
6.
Have an EXIT plan
The aim
of most entrepreneurs should be to have an exit plan and selling your business
can provide the capital security you need to finally hang up your boots. For
those that structure their business properly, up to £10m of Entrepreneurs
Relief is available. This can reduce the
CGT liability from 28% to 10% on the sale.
%2BJason%2BHockey%2B(Contracts%2BManager)%2BPhilip%2BFry%2B(Managing%2BDirector)%2BSite%2Bmanagers.jpeg)
