Avoiding self-employed tax traps: The Sunday Times

Tax traps for the self-employed

Whilst there are upsides to being self-employed, these individuals have numerous tax deadlines they need to meet. Importantly, they may need to plug income gaps to meet their tax responsibilities. If the self-employed don’t manage their tax affairs correctly, there can be costly penalties to deal with.

Individuals can find themselves caught with tax responsibilities that they may not know about until it’s too late. These include:

• The 60% tax band: an ‘unofficial’ band for higher rate taxpayers earning between £100,000 and £125,140.
• National Insurance (NI): individuals can often end up paying too much or too little NI contributions.
• Business assets: Business equipment can qualify for tax relief. However, it cannot be used for personal use or the relief could be lost.
• Company incorporation: A more tax efficient method for higher rate taxpayers but incorporation costs and director duties may not be worth the investment.

Katharine notes that when it comes to incorporation, “the rules change so often, so it’s really important to keep up to date with what is the most tax-efficient option. Costs involved with setting up a company and filing annual accounts and other financial documents throughout the year can really add up.”

You can read the article in full with Katharine’s comments in The Sunday Times.

What should you do as a self-employed individual?

It is worthwhile seeking professional tax advice to help you understand your tax position. Wherever you are in your personal journey, our Private Client team can help you create a plan that works best for you based on your circumstances and goals. Get in touch with Katharine or our team today.