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What are the tax advantages of working for yourself?

What are the tax advantages of working for yourself?

When you start working for yourself you probably will find it difficult to estimate what your annual turnover might be. If you are taking on a franchise, you will obviously have gone into all of that before taking the business on but many mums working from home part time will only have fairly small earnings coming in to start with. Even so, it is important to take keeping your books seriously, as when the time comes to fill in your tax return, it will make it much easier if you have all the figures at your fingertips.

You have a tax free allowance, as does every working person in the country and if you don’t exceed that as a salary, you will pay no tax. This changes with most Budget announcements, but is currently around £7.5k which equates to £145 per week, which may be as much as you, as a mum working from home to make a little extra money, be all you feel you need. In this case, you won’t be taking advantage of the many tax advantages which are available to you when working from home. You can offset many expenses of running your business against tax and an accountant can help you by listing them all and of course not all of them will be appropriate.

Your business doesn’t have to be a complicated one to come into the tax advantage territory, though. If you are simply contracting to make or assemble items at home for a third party, as long as you are self employed you will find that there are expenses which are specific to the job. If you have to deliver items, or take them to the post office, you can claim a mileage allowance, which is currently 40 pence a mile. This is to allow for depreciation of your vehicle as well as the cost of fuel and of course you can only claim this against your tax if you use your own vehicle and don’t get a mileage allowance as part of your payment. You can also allow for the cost of heating and lighting the rooms you use for your business, depreciation of equipment and all kinds of other allowances.

If your business grows quickly, you are allowed to pay a member of your family to help you, but this must be genuine and the person who is paid has to then pay tax. This is something which is best discussed with an accountant who will be used to advising the self employed in all kinds of businesses. If you take on business financing, there are allowances against the interest on the loan. The thing to remember when working from home either as a sole trader, freelancer or contractor is that tax is quite simple when you understand it and it is worth examining all avenues before you decide how you want to run and grow your company. It is certainly worth examining all options, from tax credits to allowances against tax, but this should not be the limiter to your business growth.


 

Related tags: Tax allowance, Tax credits

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