As a contractor, it’s always important to be ready for the year ahead, but when it comes to the 2021/22 financial year it’s even more vital. That’s because new IR35 legislation comes into effect on April 6th and could impact your contracts and the amount of tax you pay.
IR35 is not the only tax planning task to complete if you’re self-employed either, with various financial areas of your business crying out for attention. Get them in order now for an organised and stress-free year ahead.
Understand your financial position
Putting systems in place now that help you to understand your financial position and check up on it at any given time throughout the year will ensure you can maximise your tax planning opportunities. Knowing what your liabilities will be in advance will allow you to be fully prepared for them and prevent any nasty surprises.
Mitigate tax liability with pension contributions
Pension contributions can be used to reduce or eliminate higher tax rates if your income is set to take you over the threshold for the year. As approved pension scheme contributions benefit from high levels of tax relief, you could use them to reduce your personal tax bill and that of your limited company. This is where Brookson Financial, our sister company, or an independent financial adviser, will be able to advise.
Plan your dividend withdrawals
Dividends should be considered for the year as a whole, with the timings and amounts of profits withdrawn from the business carefully planned. As the director, you can decide on these factors and adjust them to fit with your personal tax liabilities and not push yourself into the higher tax rate threshold.
Implement an expenses system
Claiming tax relief on allowable expenses can save you between 20 and 40 per cent of the cost. To ensure that no potential claims are being forgotten about, make sure you have a system in place to keep track of your expenses, as this will make things a lot easier in the long run.
Consider extracting the company profits
There are a number of reasons why you might be thinking about winding your company down, such as preparing to retire or take on a permanent role. If this is the case then it’s worth considering extracting the company profits to maximise the amount you get out of the business before coming to the point of closing it down.
Engage the right help
Tax planning should go beyond organising your end of year accounts and filing your tax return. It should be an ongoing process that enables you to run your business efficiently and requires expert advice. Put such support services in place now for reassurance that you’re maximising the possibilities throughout the upcoming financial year.
If you need help preparing for the tax year ahead, contact Brookson.