Self-employment has several benefits but someone who goes from being an employee to self-employed may find that they now have to carry out various tasks and business functions that would have been previously taken care of by their employer. Tax is one such area and it can be complex and challenging to self-employed persons.
However, it is important to know what tax deductions and benefits are available to you.
- National Insurance
People are required to pay National Insurance, of which there are two types that the self-employed must pay. You must pay Class 2 if your profits are £6,515 or more a year or Class 4 if your profits are £9,569 or more a year.
However, there are special rules for specific jobs and some self-employed persons are not required to pay National Insurance. This applies to examiners, moderators, invigilators, and people who set exam questions, people who run businesses involving land or property, ministers of religion who do not receive a salary or stipend, and people who make investments for themselves or others, but not as a business and without getting a fee or commission.
Unfortunately, gaps in your National Insurance record may prevent you from getting the full State Pension, which is why a tax consultancy may recommend that you pay voluntary contributions even if you are a self-employed person who is not required to pay National Insurance.
- Self-Employment Income Support Scheme
Persons who are self-employed or a member of a partnership can claim a grant under the Self-Employment Income Support Scheme if they have been affected by the COVID-19 pandemic. There are three stages that you must meet if you are to claim this Self-Employment Income Support Scheme grant.
- Stage one looks at your trading status and you are required to have traded in 2019 to 2020 and 2020 to 2021 tax years if you are to claim the grant under the scheme.
- In stage two, your tax returns and trading profits are looked at.
- the final stage is deciding if you can make a claim.
A tax advisor can help you with the records and information you need to provide when making the claim, for instance, if you intend to keep trading in 2021 and 2022 and if there is reasonable evidence that the pandemic will have a significant reduction on your trading profits between 1 May and 30 September.
- Simplified Expenses
Self-employed persons are required to calculate their business expenses for tax purposes but can use a flat rate instead of the actual business cost. This is known as simplified expenses and it can be used by sole traders and business partnerships that have no companies as partners.
Simplified expenses cannot be used by limited companies and partnerships involving a limited company.
The flat rates can be used for expenses like the business costs for some vehicles, working from home, and living in the business premises. While simplified expenses can be used by the self-employed, a tax advisor may only recommend using them if the flat rates suit your business.
- Capital Allowances
You can claim capital allowances on items, which are known as plant and machinery, that you keep to use in your business. These items include equipment, machinery, and business vehicles like vans and lorries, integral features of a building, fixtures like kitchens, alterations to a building to install other plant and machinery, as well as costs of demolishing plant and machinery.
A few items that a self-employed person cannot claim capital allowances for include anything that is leased and not bought, buildings, land, and structures like roads and docks, and items used only for business entertainment.
If your income is £150,000 or less a year, a tax advisor may also suggest you use cash basis instead of capital allowances, as it is a much simpler system.
In the United Kingdom, there are various tax deductions and benefits that the self-employed can make use of, but keeping and submitting the relevant records and complying with regulations can be too complex for most self-employed persons to handle by themselves.
This is why the self-employed should consider working with a tax consultancy like S&T Associates which offers a range of useful and beneficial services.
Looking specifically at tax deductions for the self-employed, a tax consultancy like S&T Associates can identify all applicable programmes and help the self-employed person benefit from them. This is one of the main reasons why the corporate and personal tax solutions by S&T Associates are of great use to self-employed persons.
