Are you happy with the amount of tax you paid this year?
I know that might sound like a strange question – it’s not like many of us throw a party to celebrate handing over our hand-earned cash to HMRC!
But ultimately, to some extent you are in control of the amount of tax you pay.
To be very clear, I’m not talking about tax evasion or tax avoidance here, which are both illegal and ethically bankrupt.
What we are talking about is making sure that you are using ALL the rules and allowances that are open to everybody, to ensure you don’t pay any more tax than you really need to.
Now, if you’re like many business owners, you might have had a bit of a shock when it came to your January tax bill. Because despite the fact that tax returns can be filled out anytime from the 6th April onwards – which doesn’t mean you have to pay any earlier, by the way – a staggering percentage of people wait until January to fill out their tax return.
And if you are one of these people who waits until January, there are a few issues that you face.
Firstly, there’s the inevitable stress of trying to get it done in time and not get fined. Especially if you’re filing your return yourself and there’s a problem with the website on your laptop, or you can’t remember your login details, or your wi-fi suddenly goes off, just when you really don’t need the tech headache. Even if it’s all fine, the added pressure of the deadline is never much fun.
A bigger issue is that your accountant will be super busy, because lots of other people also leave their tax return to January. They haven’t got as much time to discuss with you what the impact of the expenses and costs that you’ve submitted might be – which means they might not get categorised accurately, and you may not get all the deductions that you’re actually entitled to.
So you end up paying more tax than you really need to, had your accountant had more time to help.
But more than that… it’s not usually until your tax return is submitted, that you know how big your tax bill is going to be.
If you or your accountant submits your tax return on 31st January, you get to the final screen and it tells you how much you have to pay.
31st January it’s the deadline for when your tax return needs to be completed, but it’s not a target!
If you complete your tax return on 6th April – or in say May or June – you still pay your tax in January. But now you’ve got 6-9 months of knowing how much your tax bill will be, so you can save the money bit by bit.
Unless you’re somebody who puts money aside for tax each month, pulling several thousands of pounds out of thin air can be a complete nightmare. Especially after all the inevitable Christmas spending. And let’s be honest, sorting your tax return while all your expenses and costs are fresher in your mind is always going to be easier than leaving it another 9 months, by which time your business may have changed significantly.
So let’s think about some things you can do to reduce your tax bill next year.
The first thing is you need to act NOW.
Why? Because we’re already well into 2024 and this tax year actually ends on the 5th April.
It’s another disadvantage of leaving your tax return until January – if you realise in completing it that there are changes you want to make to save money, you’ve literally got three months left of this year, before that’s another tax year gone and it’s too late.
So what can you do to reduce your tax bill, so you’re paying less tax next January?
#1: Pensions!
Pay into your pension, from your personal account if you’re a sole trader.
If you’re a director of your own Limited Company, you can pay into your pension through your business. While this decreases your corporation tax liability rather than your personal tax bill, it’s a great way of getting money out of your business and reducing your tax bill overall.
I’m including it here because for most people, pension contributions are a very tax efficient way of saving for retirement. And with the limits having increased recently as to how much money you can put into your pension, it can be a brilliant way to pay less tax in total.
If you have a Financial Adviser who has already set your pension up, speak to them about paying a bit more in. If you manage your own pensions, you’ll need to find out if you can make a personal contribution (and thus pay less personal tax) and / or whether they’ll accept a payment from your Limited Company, as some old pensions don’t allow new contributions.
#2: Hunt For ALL Allowable Expenses!
Look at things that you currently pay for at home from your personal account, which can be paid for by your business.
Of course, your business can only pay for things that are allowable expenses – but there are SO many things that people don’t realise they can claim.
Things like mileage to networking events, or training and development costs. But also things like private medical insurance and death in service.
And setting up life assurance that your business owns on you, to pay your family and dependents some money if you were to die before you retire. If you work for the NHS or are a teacher, for example, your family would receive two or four times your salary if you pass away. You can set up a similar type of thing for Limited Company directors.
It’s a bespoke plan that usually needs to be set up by a Financial Adviser… which brings us neatly back to Financial Advisers!
If you want to pay less tax, then working in partnership not only with an accountant but also a Financial Adviser is something that makes so much sense in the long run.
I’m one of the few Money Coaches in the online space who is also an FCA qualified Financial Adviser and have been for over 15 years now. My work has been featured in The Telegraph, Moneywise and Sheerluxe and I’m a regular guest on BBC Radio Kent, as an expert in my field.
So if you don’t already have an adviser of your own, feel free to get in touch here so we can chat about how we work and what options you might have.
If you’re just looking for some handy tips about exactly what you can claim on your tax return, to reduce the amount of tax you pay, then you’ll love my Tax Eliminator Masterclass which is available here.
Whichever path is right for you, what matters is that you take action NOW. I know I’m banging the same drum here but if you put it off, it’ll be too late and a whole other financial year will have passed before you know it!
Until next time,
Claire