Tax & admin · 7 June 2021

How to pay less tax as a sole trader with this simple advice

How to pay less tax as a sole trader with this simple advice

Taxes: the number one reason people choose not to become self-employed. Taxes can be a nuisance at best or can end up being expensive, frustrating, and mystifying at worst. But if you are a sole trader, taxes are something you will have to deal with every year. When handled properly, you can pay minimal taxes and spend less time on calculations and paperwork, but you need to be armed with the right information around tax laws, how to complete tax returns, and how to save money on sole trader taxation.

We’ve rounded up the best advice on sole trader tax to give you simple ways to save money and handle your small business tax more efficiently.


Don’t leave it to the last minute

In the 2019/2020 tax year the deadline for completing and submitting tax returns online was 31 January 2021. Around 700, 000 people waited until the last day to submit their returns, and over 26, 000 people waited until the last hour to complete theirs.

It’s not unusual to put off doing taxes, but when you wait until the last minute you run the risk of being stressed and frantic when you fill in the forms. Rushing through the steps could lead to missing vital information and losing out on savings – or worse, submitting the wrong information and being charged too much or being fined.

The tax year ends in April and the deadline for submitting tax returns is the following January. Give yourself a chance to complete your forms properly and calmly by starting early. You could even submit them in May if you wanted to give yourself plenty of breathing room. Remember that when you fill out the forms online you are also able to pause the process and go back. Allowing yourself ample time to make changes means you have a chance to check anything that might be confusing or find any transactions that might not have been recorded properly.


Claim for everything that you can

When it comes time to fill in your tax returns, most people want to finish theirs as soon as possible and get them out of the way. But spending a bit more time making claims could save you a lot of money.

All businesses have running costs and certain expenses can be deducted from your final profit before tax is calculated on it. You can claim for almost anything, as long as it is being used for business purposes. The HMRC website has a list of expenses that can be claimed on.

If you are working from home, then you can also claim on some of your household expenses. You can claim either a flat rate or calculate your costs based on how much time you spend in your home office and what utilities are being used. It may not seem like a lot at first, but if you are able to claim back on your home office, electricity, and office equipment, the amount can add up and save you more than you realise.


Don’t forget charitable giving

Taxes are broken down into different rates depending on your earnings, a shown below:

Tax Band Taxable Income Tax rate
Personal Allowance Up to £12, 570 0%
Basic Rate £12, 751 to £50, 270 20%
Higher Rate £50, 271 to £150, 000 40%
Additional Rate Over £150, 000 45%

If you are paying above the basic rate of 20% then you may be able to claim for tax relief of up to 25% on charitable donations that have been made using Gift Aid. This applies to any donation, including shares, property, or cash.

Gift Aid allows the recipient of your gift to claim an extra 20% on the gift, but this is based on the basic rate, so if you pay more then you are able to claim the remaining tax back on the gift as well.

Also realise that donations can be claimed for in the current or previous tax year. This is especially important if you are changing tax brackets. If you paid a higher tax rate in the previous year, a charitable donation made now can still be claimed on for that year. Claiming relief on charitable donations, especially when you change tax brackets, can help you decrease your total taxable amount as well as get money back that otherwise would have gone to the taxman.

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