Thursday, August 26, 2010

Hanging On To A Greater Proportion Of The Money You Earn – Ways To Reduce The Tax You Pay By Becoming Self-Employed

Back in 1900, it occurred on a snowy January 22nd. By 1970, it was celebrated in the balmier climes of the 4th June. Over the past 40 years it has gone backwards and forwards between the months of May and June. Regrettably there’s little chance it will go back to a colder date in the year. This year we might have had a barbecue to welcome it on the penultimate day of May.

The date is, of course, Tax Freedom Day. If all the tax we have to pay in the year from January to December, was chargeable up front, then the date concerned marks the date on which we could complete paying all our tax and start keeping the money we earn.

It’s certainly a sobering fact that people take nearly half the year working merely to pay the taxman. But it’s possible to find ways in which you can legally avoid tax and the tax you have to pay can be lessened. This is true in particular if you become self-employed, if you work from home or in the numerous online jobs which have been created in recent years in Internet business.

The fact is that employees have no choice but to put up with the money that is deducted, before they even get paid, from the money they earn. The self-employed take responsibility for payment of their own tax. With the help of an accountant, they can offset various overheads against tax and by doing so decrease their tax bill. A few self-employed people have informed me that their tax liability is much less than when they worked for someone else.

I once worked for a while for the other side, at a Tax Office. There was just one tax inspector responsible for all workers on a payroll in their district, and yet there were 10 inspectors sorting out the significantly more limited number of small business people and other self-employed. This is because the rules for tax computation for those working for themselves, are so convoluted.

Recently, HMRC has become stricter about who can claim to be self-employed. A lot of self-employed people who are based in an office, or even work from home, have been told they are in fact employees since they don’t determine their own work timetable.

Thus, people who wish to reduce their tax outgoings must genuinely work as their own boss. There are a variety of genuinely self-employed openings in Internet business. You can found your own business online, or opt for online jobs as representatives of an established business, and yet you can still pay tax on a self-employed basis since you determine the hours you work and work that you do. If you work from home you can reduce your expenses still further, yet those expenses that remain could still be tax deductible. However you should always get professional advice on what is tax deductible. It is also advisable to submit tax returns before the declared deadlines, or you might be landed with a fine.

A lot of self-employed people work as sole traders, so they will still be liable for income tax, although subject to expenses deducted. There are also those who go into partnership with one or more others. Where this happens, one nominated partner must submit a Partnership Return indicating each partner’s share of the partnership’s profit or loss. Another option , of course, is to form a limited company, in which case you become, technically, a company employee and the company ‘pays’ you a salary, out of which you pay normal income tax. The company’s profit is then liable for Corporation Tax. One advantage of setting up a company is that shareholders have limited liability.

Working in online jobs in Internet business is one of various ways open to you if you want to become self-employed and minimize the tax burden, with the advice of a tax accountant (and their advice , of course, may also be claimed back against tax). But, as said before, at all times seek professional advice on all tax issues, if you take the plunge and work for yourself.

No comments:

Post a Comment