Be Prepared and Reduce Your Tax Bill
We’ve not all been Boy Scouts but their motto of ‘be prepared’ applies to everyone, particularly when completing your self assessment tax return. Since the aim of most contractors is to be tax-efficient, often through a limited company set-up, that’s best achieved legally by thorough preparation.
Bright and Early
To submit a tax return, you’ll need a ten-digit Unique Taxpayer Reference, which isn’t issued automatically to contractors operating through a limited company. You must complete and submit form SA1 to get this number.
The deadline for filing your self assessment tax return is 31st January and there’s a £100 penalty if you’re late. Income tax owed is generally then due 31st January and 31st July, with penalties and interest charged when late. Added to that, persistent lateness will alert HMRC and make it more likely you’re subjected to a tax investigation, which you should avoid at all costs (even if you have done nothing wrong, they are an administrative pain and it can be stressful).
There is usually a panic in January for taxpayers to submit their returns by the deadline. If you have everything ready before then, don’t delay. Submitting early means you’ll get due refunds quicker and can be prepared for any payments you have to make. At Phoenix, we submit most of our clients’ returns before the December holiday period – it provides everyone with peace of mind, and a stress-free start to the new year. We also offer a 60-day free trial – why not give it a shot and be prepared?
Planning and Preparation
As soon as you’ve submitted one year’s tax return, it’s time to start preparing for the next one. The aim is always to minimise the amount of tax you pay and there are several steps to take to do this.
- Claim all allowable expenses, including travel and subsistence, professional fees, mobile phone and anything for business use. You can even claim for a staff party at up to £150 per guest, which may be just you and your spouse/partner. Record keeping is essential. We can assist: our Real Time Cloud Accounting software provides secure data storage of all your receipts and other important documents. Simply scan or snap a photo using your phone, and upload it securely.
- Since most clients will be VAT-registered, ensure you are too, even if turnover is below the threshold. This will enable you to claim back VAT on expenses. If turnover is below £150,000, flat rate VAT should save money and administration time. If you are not sure what this means, or if you are on the right VAT scheme, talk to us.
- Set up a company pension scheme for retirement in a tax-efficient way and consider life insurance.
- Take advantage of a director’s loan that has no tax consequences below £5,000.
- Be paid a director’s fee at a low level to minimise NI contributions.
- Be aware of your company’s ongoing net profits (income less expenses, directors’ fees/salaries and corporation tax) so you know what’s available to pay as dividends. Pay an amount that’s sufficient for your lifestyle and tax-efficient, also paying your spouse/partner as a director/employee to utilise their tax allowances (certain specific restrictions apply, talk to us if you are not sure).
Crucial to this is the keeping of accurate and comprehensive records, which you must retain for five years otherwise you risk a £3,000 fine for each missing year. Proper records prevent mistakes and reconciliation of bank accounts avoids charges and identifies errors.
That’s all possible using Phoenix Cloud Accounting’s service, where bank transactions are downloaded automatically and records are securely maintained through our secure Real Time Cloud Accounting Software. It’s easy to use and jargon free, and your dedicated account management team is always available to assist you with any questions you may have. More importantly, we actively monitor your accounts in real time, and as a result we are usually able to identify problems before they arise, and we can deal with them effectively. This is the beauty of Real Time Cloud Accounting – we’re working for you ALL the time, not just once a year when your filings are due!