Updated: Jan 3, 2019
Sole traders and individuals in the UK can save tax by having a good tax plan. In this blog, I have explained how this can be achieved.
1. Contribution to a Personal pension scheme by Sole traders.
The sole trader would enjoy relief at source for the contribution. The advantage of doing so is that the amount paid into the pension scheme is grossed up by 20% and the amount derived is used to extend the basic band and also the higher and additional rate for high earners.
2. When Sole traders gifts to Charity.
When a sole trader or individual gives to charity and the charity receives gift aid on the donations. They can also have the advantage of the extended tax band as explained above thereby paying less tax or receiving a tax refund.
3. Sole traders Investing in plant and machinery and fixtures.
When a sole trader invest in plant and machinery or fixtures, they can claim capital allowance (except if exempted from plant and machinery especially when they fall under buildings).
For some capital investment, a sole trader could claim up to £200,000 per tax year if it qualify for annual investment allowance or the whole amount if it qualifies for first year allowance. All this amount spent would be used to reduce the tax for the period.
Tax advice here is that sole traders should be strategic with their timing when investing in plant and machinery.
4. Marriage Allowance for Sole traders and individuals.
When sole traders partners with husbands, wife or civil partners who do not use up their personal allowance can have the personal allowance of their partner’s transferred to them.
They can transfer £1190 of their personal allowance to them. The benefit of this is that it makes the sole trader’s income tax to be reduced by £238(For tax year 2018/19).
The condition to enjoy this benefit is that both couples have to pay tax at the basic band and the partner transferring must have an income lower than their personal allowance(11850).
5. Sole traders incorporating their business
Depending on the amount of profit involved it might be cheaper for the tax payer if there is no commercial reason to incorporate the business. This would save tax by planning some of the income as salary and dividend.
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