Self-employed? Tips to help cut your tax bill

Leaving your self-assessment tax return until the last minute? Don’t worry, you’re probably not alone.

In fact, in 2022 it's estimated more than 2.3 million people missed the deadline completely and more than 600,000 left it till the last minute.

Completing a tax return can be boring and it might not be something you look forward to every year. But doing your tax return sooner rather than later can help avoid any last-minute panic. Rushing to complete your form could mean you overlook vital information.

The deadline for completing your tax return for the 2022/23 tax year online is Wednesday 31 January 2024.

Here are four tips to help you save on tax or maybe even claim some back.

This isn’t personal advice. Tax is a complex subject, so if you're not sure what’s best for you, you should seek professional advice. Pension and tax rules can change, and any benefits depend on your circumstances. If you’re a Scottish taxpayer, different tax rates and bands can apply.

1. Claim for higher rates of pension tax relief

Pension and tax rules aren’t the easiest to get your head around. And a major area of confusion is tax relief.

Put simply, if you’re a UK resident under 75 who makes personal contributions to a pension, you’ll get tax relief on the amount you've paid in (providing this doesn’t exceed your earnings). This is usually paid automatically into your pension by the government. For example, you pay in £8,000 to your pension and the government pays in £2,000 (20%) in tax relief.

If you’re eligible and pay tax at the higher rate of 40%, you could get up to a further 20% in tax relief if you claim it. Using the same example, you could claim back up to a further £2,000 in tax relief. That means a total pension contribution of £10,000 could effectively cost you as little as £6,000. If you pay tax at a higher rate, you might be able to claim even more.

You can normally only access your pension from 55 (57 from 2028). Investments can fall as well as rise in value, so you could get back less than you invest.

How do I claim higher-rate tax relief?

This is something you can easily do through your tax return.

It’s important to include the gross value of your pension contributions. That’s the total of what you’ve paid in (your personal contributions), plus the 20% tax relief from the government.

The additional tax relief will then either be paid to you directly, or HMRC will adjust your tax code or reduce your tax bill.

Try the pension tax relief calculator

If you run your own company and have a workplace pension, you’ll need to do a bit of digging. Some schemes automatically reclaim basic-rate tax relief with any additional tax relief needing to be reclaimed through a self-assessment, whereas others might do it all automatically.

Workplace schemes which use salary sacrifice will automatically save you tax at your highest marginal rate. If you’re unsure, get in touch with your pension provider to check the scheme rules.

More on pensions for the self-employed

2. Claim all your allowable expenses and any extras

Allowable expenses

If you work for yourself, your business will have running costs. You can deduct certain expenses from your profits before tax, which is a great way to cut down your tax bill.

There’s a useful list on the HMRC website, which includes everything from advertising costs to travel costs – depending on what you use for work. Check this to make sure you’re claiming for everything you’re entitled to.

Working from home

You might be able to claim a proportion of certain costs associated with working from home. If you’re a sole trader or part of a partnership, you can either calculate what you spend on these for work purposes, or you can simply claim a flat rate (also known as simplified expenses). The HMRC website has more information on the best way to claim for your circumstances.

Gift Aid

If you pay tax above the basic rate, you could claim tax relief (up to an additional 25%) on charitable donations made using Gift Aid. You don’t just get this on cash donations either – you also get tax relief on gifts of land, property or shares you make to charity. Remember, if you’re a Scottish taxpayer, different rates of income tax apply.

Ticking the ‘Gift Aid’ box when donating means the charity can reclaim 20% tax back. But if you pay tax above the basic rate, you’ll need to reclaim any further tax relief on your donation through your tax return.

3. Make a charity donation now to reduce your tax bill

If you have the spare cash, making a charitable donation before 31 January 2024 could reduce your tax bill for the 2022/23 tax year. This is because donations can be claimed in either the current or previous tax year.

This is particularly useful if you paid a higher rate of tax last year and a lower rate this year – as you can still claim the higher rate of tax relief on your donation.

4. Correct and claim against previous tax years

You can claim a refund for any overpayments you’ve made in the last four tax years. So if you stumble across something you could’ve claimed for previously, or if you spot a mistake in previous years’ tax returns, make a note.

Write to HMRC explaining that you’re making a claim for ‘overpayment relief’. You’ll need to include:

• Proof you’ve overpaid tax through self-assessment
• Signed declaration saying the details you’ve given are correct and that you haven’t previously tried to reclaim the refund in question
• How you’d like the repayment to be made

How to make next year's tax return less painful

Make a pension contribution

Your tax return relates to the previous tax year, so making a pension contribution today could help reduce your bill for next year. If you don’t already have a pension and would like to save for your retirement, you could think about opening one and benefit from these generous tax perks.

More on pensions for the self-employed

Get help from an expert

If you think you might need an accountant next tax return, you need to start looking around. Don’t leave it until next January, when accountants are snowed under, and many won’t have the time to take new clients on.

There’s also loads of great information on the HMRC website. You can find the answer to almost any question that’s likely to crop up. There are also plenty of guides and videos offering tips to save you time and money.