They say that taxes and death are unavoidable. So, avoiding taxes is not only unfair but impossible. So, let us plan to save some tax self-employed people now. Here are the top 10 tax saving tips for self-employed in 2020.
Contributing to a private defined contribution pension plan can be a great way to achieve income tax savings.
It is not only beneficial post-retirement, but such savings are a tax-deductible expense.
The tax deduction is claimed at the highest rate of the income tax that you pay, provided that the total pension contributions paid into your pension plan do not exceed the lower of:
The annual allowance is currently capped at £40,000 per tax year.
This limit is not per plan and includes all contributions paid by you, your employer and anyone else to all pension schemes/ plans.
Current lifetime ceiling of such savings is £1,073,100. You can find more information here.
The Individual Saving Account (ISA) helps you to save up to £20,000 (for the fiscal year 2020-21). It can be diversified in various ways, such as cash, stocks, and shares.
Peer-to-peer loan scheme which comes under innovative finance is another way to benefit from taxes, thus lending money to other people or businesses without seeking support from a bank or any financial institutions.
If you are an investor at heart, then investing in early-stage approved startups will help you reduce your taxes. Investing in businesses approved for Seed Enterprise Incentive Scheme (SEIS) or Enterprise Incentive Scheme (EIS) can save up to 50% of the amount invested.
How much can I invest in a SEIS scheme?
How much can I invest in an EIS scheme?
I have a UK income, but I do not live there. Can I still invest and claim EIS/ SEIS relief?
Is there a minimum qualifying term for EIS/SEIS relief?
The tax-free childcare scheme enables you to receive up to £2,000 annually if your annual earnings are less than £100,000 per year.
There are two ways to claim transportation costs:
Such travel must be exclusively for business purpose.
Current mileage rate is 45p for first 10,000 miles and 25p after that.
Considered to be a standard procedure amongst the business owners or entrepreneurs, hiring a family member can be a significant step in reducing tax.
It is tax-efficient when such family member is not employed else, or personal allowance is not exhausted.
The current scenario has bound us to work from home as commuting to the office is restricted or not preferred by many of us.
Claiming from the ‘Use of Home’ scheme, this particular tax-saving method helps one to use a proportion of home costs such as telephone calls, the extra cost of heat, electricity and water bills.
From 6 April 2020, your employer can pay you up to £6 a week (£624 a year) to cover your additional costs if you must work from home.
Flat rate scheme was first introduced in 2002 to provide a more straightforward way for small business owners to compute their tax liabilities.
Under the scheme rules, the business will pay a fixed rate of VAT based on the turnover.
Once registered in this scheme, you cannot claim the VAT paid on purchases.
Flat rates vary between 4% to 14.5%.
Because of COVID-19, various businesses are paying reduced VAT rate, for example, Catering services including restaurants and takeaways were paying 4.5% between 15 July 2020 to 12 January 2021 (otherwise 12.5%).
What are capital gains?
What is capital gains allowance for the tax year 2020-21?
Civil partners and married couples owning assets jointly are eligible to claim a double allowance of £24,600 per tax year.
Like personal allowance, capital gains tax allowance cannot be roll forwarded. Any unused allowance expires forever.
Under this scheme, you can receive £7,500 tax-free rent each year from a lodger.
You must provide furnished accommodation in your home, and you are living in the property.
If two people sharing a property take advantage of the scheme, both can only claim £3,750 each.