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3 ways contractors can pay less tax

freelancesupermarket.com newsroom

RSS 03 August 2009
As a freelancer, there are some obvious ways that we can avoid paying too much come 31st January.

The most common such way is simply structuring your business to remain outside IR35 ; if you're ruled a "disguised employee," your tax bill could rise significantly.

IR35 is not hard to avoid when you know what you're doing, but it can be difficult if you're not familiar with the vagaries of IR35. While HMRC offer a free review, you're probably better off not asking the people who stand to benefit from putting you inside IR35 - especially when it can put you 20% out of pocket for the year's tax. There are many qualified professionals who can review your IR35 status, and help you preserve yourself outside IR35 and its higher tax by modifying your employment contracts.

Another common way to avoid paying excessive tax is to carefully track and deduct allowable expenses , but not all such expenses are deducted by most freelancers. Car expenses are frequently left at the table when filling out one's tax return; keep a log book of the expenses you incur for your car, and make sure all these expenses are properly deducted when the time comes. Some freelancers have found that as much as 95% of their car usage over the year can be deducted on their tax as expenses.

Another seriously neglected area of tax is the council tax. Single people in particular should be aware that your council tax is based on two adult residents; a single resident should pay less tax, 25% less tax to be precise, and even if other people live in the household certain categories are considered "disregarded people" for purposes of council tax - notably, full-time students.

More interestingly, council tax for most homes in England and Scotland is based on an assessment of value made in 1991, and housing was separated into "bands" identifying the amount of council tax they should pay annually. If any change has been made in the property in the past eighteen years, you can contact the Valuation Office Agency (VOA) to have your property's band for council tax reviewed... potentially saving hundreds of pounds in tax.

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Image: Day 26 - Dirty Little Secrets by gotplaid?

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