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MONEY SAVING TAX TIPS FOR SELF-EMPLOYED ELECTRICIANS

With the rising costs of living, petrol increases and the gas energy crisis, self-employed electricians are finding their income is being pinched more than ever before. If you’re worried about finances this year you’re not alone – thousands of other self-employed contractors are also in the same position, writes Oumesh Sauba, Founder and CEO of MYT.

There are ways that you can reduce your tax bill and reduce your money worries. One of the best things you can do for yourself is to know the tax rules. Once you know the rules, they can work in your favour and will help you make the most of your income.

Make pension contributions

You may be under the impression that putting money away into a pension means you are losing take-home money each month, but this couldn’t be further from the truth. If you pay tax at the higher rate of 40%, you can claim tax relief by making pension contributions when you submit your self-assessment. You can claim 20% on pension contributions up to £40,000 per year.

You can also use a tax-efficient pension like Self-Invested Personal Pensions (SIPPS) to help you leverage funds. These pension schemes are subject to certain rules and can be used to buy property where you will get additional tax benefits. Of course, as with all self-employed people, you’ll need to set up any pension scheme yourself.

Claim all allowable business expenses

Did you know that if you are a self-employed electrician you can claim expenses for a variety of items used for the business and get a tax relief from them? Any sort of equipment used, travel costs such as fuel and parking, clothing costs like uniforms and even things you buy to sell such as stock or materials can be claimed.

These are all classified as running costs and necessary for your business. To find a full list of allowable expenses you can visit the UK government website. Allowable expenses do not include money taken from your business to pay for private purchases. If you use something for both business and personal reasons you can only claim allowable expenses for the business costs.

Incorporate your business

Incorporating your business is another way you can save money on your tax return. By changing from self-employed into a limited company you can name yourself as a director. This entitles you to withdraw some earnings as dividends, which are tax-free for the first £2,000 and subject to lower tax rates.

Of course, there’s a lot to weigh up when thinking of leaving the freelance world. If you think you may want to go down this route make sure you’re following all of the rules and applying as the right type of company.

Once you know the rules, they can work in your favour

Use the marriage allowance

Are you married? One of the best tax reducing tips out there is claiming marriage allowance. The benefit of marriage allowance is that the lower earning spouse can apply to HMRC to request their unused personal tax allowance can be transferred to their spouse. This gives married couples (or those in a civil partnership) a tax perk, with the higher earner receiving a tax credit that is deducted from the amount of tax they would usually have to pay.

If you’re self-employed you can claim marriage allowance as long as one partner earns less than £12,570 and the other earns between £12,571 and £50,270. You’ll still need to file for a self-assessment tax return, but marriage allowance will reduce your bill.

Use tax return and accounting software

Implementing accounting or bookkeeping software as a self-employed person can help streamline your financial processes and, in the end, save you money. Software powered by the latest technologies that takes care of incomings, outgoings, expenses and more will remove the constant pressure on you to keep on top of your records.

When the tax return deadline comes around again, good accounting software like MyT’s user friendly app will let you export all the information needed at the click of a button.

Software which uses automation to streamline administrative tasks like generating invoices, overdue payment reminders or requests is invaluable, giving you an accurate overview of what your cash flow looks like and an accurate tax assessment.

If you’re a self-employed electrician there’s no getting around the tax that comes with your self-assessment tax return. You can’t avoid it, but that doesn’t mean it needs to send you into a financial tailspin. By following these tips and tricks you can reduce the amount you pay in taxes and find more of the money you’ve earned in your pocket.