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Tax and NI
15. Paying Less Tax
Here are three commonly-used ways of paying less tax.
15.1 New businesses expecting to make a first-year loss can delay incorporation.
- This may be advantageous, because a self-employed person can offset the tax loss against previous years' employment income and receive a tax rebate (see 12). The business can still be incorporated later.
- Being self-employed has other important implications, though, including unlimited liability.
15.2 If you are making profits, and your cashflow is sound, it may be worth trying to reduce your profit at the end of the year in order to reduce your tax bill.
- Bring forward the purchase of items of equipment that you will have to buy later.
- Make full provision for specific bad debts.
15.3 Payments into a pension scheme are an efficient way of saving tax.
First Time Shock
When Philip Prince started his carpet cleaning business he made a lot of money very quickly. He spent it all, too - on a new van, on more equipment and on a holiday.
He was self-employed and chose the maximum 18-month accounting period to start with. It was nearly two years before the first tax bill came. When it did, it was enormous. The trouble was that Philip was taxed on the money he had reinvested in capital equipment to build up the business - and buying that equipment had left him with no money to pay the tax.
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