How to pay less tax when you are self-employed

How to pay less tax when you are self-employed

When you are self-employed, you pay tax on your earnings each year. Exactly how much you pay depends on several factors, one of which is the type of business you run. But how can you make sure you pay less in tax? We've set out a few tips below to help reduce your tax bill later.

Pay your taxes in advance

To avoid a tax surcharge, you should pay your taxes upfront. If you are self-employed but don’t have a company, you can even qualify for tax relief if you pre-pay more than you have to.

A useful way to ensure you don't overlook making these payments is to take out a tax pre-payment plan. As its name implies, your taxes are paid automatically upfront to the tax authorities.

Discover the benefits of a tax pre-payment plan

Claim your business-related expenses

You incur costs in the course of your business and these may be deducted from your revenue. This reduces your taxable income. The lower your taxable income, the less tax you pay.

For instance, with a supplementary pension savings scheme, which is designed to augment your state retirement pension, you can claim your premiums as a business expense and the money you put into the scheme earns a guaranteed return.

With a VSPSS or a social VSPSS, you even get a discount on your social security contributions. Other formulas include an Individual Pension Scheme (IPS) or a Pension Agreement for the Self-employed (POZ) (i.e. for sole traders).

Choose the right type of business form

The form of business you choose affects how much tax you pay.

Are you a sole trader business?

Then you pay personal income tax. The amount of tax you have to pay is worked out on the basis of your net business income. The higher your income, the higher your tax rate.

Is your business  a company?

Then you pay corporation tax on your profits. Unlike personal income tax, you pay a uniform rate. Corporation tax rates are generally considerably lower. The more profit you make, the more attractive it is for your business to be a company.

Need help?

To find out more about how to reduce your tax bill as a self-employed person, don't hesitate to get in touch with one of our SME Advisers. They'll add to the tips provided by your accountant by giving tax and legal advice that's tailored to your business.

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Pension saving for the self-employed: pay less tax, build up more pension income

  • Fewer taxes and social security contributions
  • Supplementary pension capital
  • Early use in property investment

Is it important to pay tax in advance?

  • How can I avoid a tax surcharge?
  • How much should I pay in advance?
  • How do I calculate my tax surcharge?

Social VSPSS

  • Tax relief
  • Guaranteed return
  • Protection in the event of incapacity for work, disability, and maternity leave

Pension Agreement for the Self-employed (SPPA)

  • The tax-efficient way to build up a supplementary pension
  • Guaranteed return
  • Combine with a VSPSS

IPS (Individual Pension Scheme)

  • Ideal for self-employed company owners
  • Tax efficient
  • Financial protection for your loved ones

VSPSS (Voluntary Supplementary Pension Scheme for the Self-Employed)

  • For all self-employed individuals
  • Guaranteed return
  • Tax relief