Tax Breaks For Independent Businesses

Tax Breaks For Freelancers And Independent Shop Owners In The UK

Are you working for yourself rather than for someone else? Regardless if you work freelance or run a shop independently, you still have mandated responsibilities that you need to deal with, particularly taxes and National Insurance.

Since failure to do so can result in the taxman breaking down your doors, it is best to comply. The good news is you can enjoy certain tax breaks.

Capital Allowances

When running a business, you have to invest in tools necessary to carry out day-to-day operations, such as computers, vehicles, machinery and the like. All these are known as capital assets, where you can get tax relief. Through your capital assets, combined with other extra allowances you can enjoy in your first year of business, you can lower your tax bills significantly.

How much you can claim, however, depends on your capital allowance or annual investment allowance (AIA). Under the AIA rules, you can spend up to £500,000 on business-related expenses, and then offset it against your income tax bill. For example, if your taxable profit is £200,000, and you bought machinery for £50,000, you only need to pay taxes for £150,000 (£200,000 – £50,000).

In the event that you spent way beyond the AIA, capital expenditure regime rules apply. That is, for anything spent over £500,000, you can claim an 18% tax relief in the first year.

Tax Allowable Expenses

Being self-employed, there are business expenses that you can claim, aside from those taken from your capital assets.

  • Travel and Accommodation

If you use a car solely for business purposes, you can claim tax relief for its running costs, including car tax and repairs and servicing. In case, you use the vehicle privately at the same time, you can only claim a proportion of it, usually a ratio between your business mileage and total mileage.

You can also claim on travel and accommodation expenses you incur during business trips and when moving from different places of work.

  • Dedicated Business Premises

A lot of self-employed work from home, but if you rent or own a dedicated business premises, you can get tax breaks from various utility bills, including cleaning, heating, lighting, rent and general maintenance. In case your home is your office, you can only claim a proportion of what you spent on the same utilities.

  • Salaries and Benefits

Hiring employees may be challenging than if you were to run a business on your own. But it can prove beneficial where tax breaks are concerned. This is because you can claim for staff wages and redundancy payments, National Insurance, insurance and pension benefits, training cost and employee childcare, if you provide one.

Working Tax Credit

If your income is low, you can get working tax credit provided that you meet certain criteria.

  • If you don’t have children, have a disability and are aged 16 or over, you need to render work for at least 16 hours a week.
  • If you don’t have children and you are aged 25 years old or over, you must work 30 hours a week at the very least.
  • If you don’t have children and are aged 60 or over, you need to work at least 16 hours a week.
  • If you are single and responsible for a child or young person, at least 16 hours of paid work per week is required.
  • Couples are entitled for working tax credit when their combined work hours total at least 24 hours a week.

Working people on low income can also get child tax credit based on certain criteria.


Photo by Adam Winger on Unsplash

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