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Tax Deductions and Benefits for the Self-Employed

Tax Deductions and Benefits for the Self-Employed

Throughout the years, legislators have written numerous lines into the tax code to soften the blow of the extra costs that self-employed persons must shoulder as the do business. However, the 2017 Tax Cuts and Jobs Act (TCJA) eliminated several self-employed tax deductions. Many of these changes are temporary and set to expire in 2025, but others are permanent.

The law affects small businesses in many ways, particularly via a complex 20% business income deduction for pass-through businesses—those that pay taxes through the individuals rather than through the corporation.

Some deductions that have been eliminated include:

Entertainment deduction
Domestic production activities deduction
Local lobbying expenses deduction
Employees’ parking, mass transit or commuting expenses deduction
A review of the most common self-employed taxes and deductions is necessary to help inform you of necessary changes to your business withholdings and income changes

The new tax year started on 6 April. While some allowance changes can help you save, are there any more ways the self-employed can cut costs?

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It’s the new financial year, which means there’s been a number of tax allowance changes. As some of these help you keep more of your hard-earned money, we thought we’d run through 10 further ways the self-employed can cut costs, saving money (and time) this financial year.

Use the tips in this article as a guide and be sure to speak to a professional before making any key decisions with your finances.

1. Make sure you know what expenses you can claim for
The online Self Assessment deadline for 2018-19 isn’t until January 2020, but to get as many deductions from future tax bills as possible, you should have your tax return in the back of your mind all year round.

It pays to keep a detailed record of all your allowable expenses so that nothing slips through the net when you fill in your next tax return.

Not sure what you can claim for? Here’s a list of the expenses the self-employed are allowed to claim.

And there are apps that make keeping track of your receipts a breeze. Take a look at some of the best accounting software available for small businesses.

2. Use your Personal Savings Allowance
If you’re in a position to put money away into a savings account you get tax allowances for the interest you receive.

For example, most people have a Personal Savings Allowance of up to £1,000, depending on the tax band they’re in. This is the amount of interest you get to earn tax-free:

basic rate taxpayers get £1,000
higher rate taxpayers get £500
additional rate taxpayers get £0
Some high-street personal current and regular savings accounts have good interest rates on savings – like the Nationwide FlexDirect current account (where you get five per cent interest on up £2,500 for 12 months) or the First Direct regular saver account (you need a First Direct current account, but the regular saver pays five per cent interest over the course of a year).

And keep in mind that banks often give incentives like cash or vouchers to switch to them. If you don’t have any reason to stick with your existing current account, it might be worth shopping around.

3. Be careful with credit cards
Credit cards can be a tempting option, especially if you’re in a bit of a financial squeeze, but using your personal card for business purposes can quickly lead to costly fines.

If you need a credit card for business expenses, look into getting one specifically for that purpose. And if you need financial help to launch your business, consider researching available business loans.

You could also look at your business bank current account to see if you’re still getting the best service possible. Check out the best business bank accounts here – some banks offer (time-limited) fee-free banking for switchers.

4. Check your phone and internet plan
This goes for both business and personal use, but it’s worth seeing if there are better deals available, especially if you’ve been with the same provider for a long time.

It’s also worth re-evaluating whether the type of package you have is right for your needs. If you find you’re often going over your call or data allowance, but rarely get through all your texts, for example, you could be costing yourself more in the long run than if you went for a plan with fewer texts but more data and minutes.

5. Make use of refer a friend schemes
Many companies these days will offer you benefits if you refer other customers to them, whether it’s money off your next order, free giveaways or simply some cashback to say thank you. It’s a great way to get extra out of something you’re already using and enjoying.

If you’ve found a product or service that you like, spreading the word can work out for you both. We do have our own refer a friend scheme, if you want to test out how one works – if you’re a Simply Business customer we’ll give you a £50 gift card for every friend you refer to us. Your friend will get a £25 gift card, too.

6. Plan your travel
Whether you’re driving or taking public transport, travel can quickly get expensive, both for business and leisure.

If you take the train, look into whether a season ticket is best for your needs, or whether you’re eligible for a railcard. They’re available for both younger and older business owners, as well as those with disabilities.

If you don’t take the train that often, planning far in advance will allow you to book advance tickets, which often work out far more cost effective than buying on the day.

And if you drive a lot, and your car or van guzzles petrol or is always in need of a service, it might be time to invest in a new one. You should also keep track of your mileage, as this can be claimed back against your tax return.

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