Tip 1 : Plan how you will be paid

There are three ways that you can receive income : sole traders can take the straight profits of the business , owners of limited liability companies can pay themselves dividends . Either can pay themselves through payroll under pay-asyou-earn ( PAYE ).

Owners of limited liability companies need to strike a balance between how much to pay under PAYE ( salary ) and how much through dividends . To get this right , you need to understand all about national insurance ( NI ) contributions and how they impact the level of your state pension . Dividends don ’ t attract NI but you should pay yourself at least a salary of around £ 8k to prevent HMRC objecting and also so you are on course for a full state pension . It doesn ’ t cost any extra to do this .

Other ways of getting benefit while minimising tax are :

• Pay a rent to yourself for using a home office , providing that you do . It ’ s taxable but saves national insurance . Just remember that you can ’ t then also claim for any home expenses

• Give yourself a company mobile phone and / or childcare vouchers . These are tax free and can also be claimed against tax by the business

• Make pension contributions to a private pension . Just remember it ’ s tied up until you are older

• Often a company car will save tax . There ’ s an additional tax saving where the business provides you with an electric or low emission car . But HMRC must be notified promptly to avoid a nasty tax bill at the end of the tax year

• Loan the company money and then pay yourself interest up to the £ 1,000

personal savings allowance (£ 500 for higher rate taxpayers ). This is tax and NI free although the interest rate you pay should be comparable to borrowing the money from a bank

• Provide a cycle , cyclists ’ safety equipment or workplace nursery

Since the standard personal allowance currently allows £ 11,850 of tax free income it can be very advantageous to pay a family member who doesn ’ t have other income . However , they must be genuinely doing work for the business . Often people pay their partners for doing bookkeeping and admin .

Tip 2 : Claim for every expense that you can

Much tax is saved by claiming deductions for money spent on genuinely running your business . You need to have a copy of the invoices ( electronic copies are allowed ), which you must then keep for a further six years . Losing a record of what you have spent is like burning money , so keep a record as you go along .

The list of expenses that you can claim for is quite extensive :

• Most important - the cost of all materials used on the job

• Staff costs including employer ’ s national insurance

• Software or app costs ( but not if purchased as opposed to rented )

• Advertising and related expenses like the cost of boards telling people about your services

• Travel expenses ( although not from home to the office or depot ). The

cost of travel tickets can be claimed and a fixed rate per mile for business use of cars and vans . This is provided no capital allowances ( see below ) have been claimed for the vehicle . The mileage rate for both is currently 45p per mile for the first 10,000 business miles then 25p per mile . It covers all costs so if you use this you can ’ t then claim for insurance , servicing etc .

• Business insurance for public liability , employer and professional indemnity . Note that public liability insurance is compulsory

• Accounting and finance costs including bank charges , legal fees and admin expenses like stationery and postage

• Protective clothing or uniforms ( which could be normal clothing but with the company logo )

• Fees for memberships of professional associations and training to keep you or your staff up to date

• If you don ’ t pay rent for use of part of your home , claim costs of heat and electricity based on hours worked at home per month : 25 to 50 hours - £ 10 / month ; 51 to 100 hours - £ 18 / month ; 101 + hours - £ 26 / month . Other costs can be claimed proportionately including council tax , mortgage interest , home insurance , water , phone and broadband with general household repairs and maintenance .

Some costs can ’ t be claimed for :

• Anything used for yourself rather than business . You can only claim for the business usage

• Buying assets that have an ongoing use e . g . tools , but see capital allowances below

• Entertaining customers or prospects or giving them gifts except when these are branded with your business

• Training where you are learning a new skill as opposed to staying current with one

You must also claim for any CIS deductions you experienced as a subcontractor . These are effectively pre-payments of tax so they come straight off your final tax bill .

One thing to think about is whether you should use a system like the one from my company , Powered Now , to record your expenses as you go along . This saves time and hassle because you can actually remember what it was for at the point you spent the money !

Tip 3 : Get to grips with capital allowances

The cost of “ capital items ” which will be able to be used for 2 years or more can ’ t be claimed as a normal business expenses . This includes things like tools . Instead , these are claimed under the “ capital allowances ” system .