How to be more Tax Efficient as a Freelancer
How to Be More Tax Efficient as a Freelancer
Freelancing gives you plenty of freedom to shape your schedule and career. If you're a creative or entrepreneurial person, freelancing lets you maximise your talents and live purposefully.
When you pay taxes, you increase your productivity as a freelancer and can leverage certain benefits. Here are three things that help you become more tax-efficient when you settle your self-assessment tax bill.
You can report certain costs as business expenses
Freelancers can report business expenses. You might be able to claim back the costs of building and launching a website, paying for PPC ads, or buying office furniture.
You can report travel costs like petrol, rail ticks, or a bike rental to get to a meeting. Furthermore, you can also claim expenses like subcontracting on a big project, renting office space or buying equipment and stationery.
If your business earns £25,000 a year, your 'allowable' expenses bring your taxable income to only £20,000. Note that HMRC has qualifications for what you can claim as business expenses. If you go on holiday and finish work on your laptop while you're there, you can't claim the vacation as a business trip.
Also, you can't report a gaming console like a PlayStation or Xbox as a 'video conferencing device.' An accountant can help you with personal tax affairs and clarify which things you can claim as related to your work.
A grey area in self-assessment is working from home. If you have an office space at home and want to report some costs as work expenses, you need to consult an accountant. The self-reporting rules related to working from home are complex and could differ slightly than if you had a brick-and-mortar office.
You could incur tax relief through charity
Higher-rate taxpayers who freelance can bring down their overall bill by reporting charitable donations on their tax returns. Donations are non-refundable tax credits, as are gifts. It's a win-win; doing good in your business helps you donate to a cause close to you.
You could apply for becoming an LTD company
Tax simplification could also come in the form of incorporating your business as a Limited company. If you are a higher-rate taxpayer, you can reduce your tax rates by incorporating.
You can achieve this by paying yourself a basic income rate (£0-34,500) and appropriating the profits as dividends paid to shareholders. For people on the basic rate, this brings the tax rate down to 7.5 per cent tax rate. As such, a self-employed individual will find it much more attractive to incorporate their business as a Limited company, rather than staying with the self-employed status.
Conclusion
As a freelancer, you have great control over most aspects of your career. What you do not control, though, are the prevailing tax rates, and what HMRC expects each duly registered citizen to contribute. When you're just building a company, it can be tricky to balance the costs of doing business with tax dues. When you know how to report your expenses, you could better leverage your status as an entrepreneur and grow your business better.
For modern, comprehensive support on your taxes, consult 1 to 1 Accountants. We offer accounting services for small businesses in Hillingdon, serving freelancers, limited companies, tradesmen, and more. Get in touch with us today for enquiries.
