One way to reduce your profit is to make the most of your family’s personal allowances. Each member of your family will have a personal tax allowance of £10,600, which means they won’t be taxed on any earnings under this limit. So, say you employed your wife to help handle admin and appointments, as long as her salary isn’t over the threshold, there won’t be any income tax to pay on these tasks.
Although you’d have to contribute National Insurance for these wages (unless they fall below £149 a week), they would also be considered an allowable expense by the tax office and would therefore reduce the taxable profit. So, especially if your business is in the higher bracket of tax payers, you can save yourself a lot of money, simply by employing a spouse.
If your partner is registered as an employee in your business, then you can pay a small amount of tax-free money into a pension pot each month. Whilst these funds cannot be accessed until your spouse reaches the age of 55, it will mean you won’t have to pay tax on them until this point. When these fund are withdrawn from the pension, 25% can be taken as a tax-free lump sum. If both you and your partner have been paying into schemes like this, you will, therefore have saved a considerable amount. You can even pay money into a pension for your children (despite whether they are earning or not), as long as the payments don’t exceed £3,600.
One of the easiest ways to reduce your tax payments is to claim on as many business expenses as legally possible. There are a number of expenses that are considered vital to your job and these can be verified with an accountant. Travel costs, uniform and agreed portions of utility bills can all be claimed on, but only if they can be proved to be essential to your business. However, it can be tricky to calculate the actual cost of using a room in your house for work purposes so flat rate schemes are available.
Cash ISAs are an ideal way to store money tax-free. Under the new regulations, you can save up to £15,240 in an ISA and none of the interest earned on it will be subjected to Income or Capital Gains tax. The ISA allowance is personal too, which means you and a partner can save a combined total of £30,480 in a joint account. If you continue doing this each year, you will soon have a tidy nest-egg to retrieve in the future. Over time, the interest you accumulate from these savings will build substantially, leaving you with considerable funds to show for all your hard work.