Top 10 tax-saving tips for self-employed mums
It goes without saying that looking after your children and being a self-employed mum is more than just a handful. Whilst every self-employed mum will have their own priorities, our advice is to focus on these 10 tax-saving tips where you can as they can make a real difference to both your finances and your business.
1. Register for self-employment in time to avoid fines
If you’re just about to start your own business for the first time and have never needed to file a self-assessment tax return before, then be aware that you will need to register as self-employed with HMRC first in order to do so. You need to this by 5th October following the tax year in which you began earning your self-employed income, and whilst you won’t receive a fine for registering late; it may prevent you from filing your first tax return on time if you leave it to the last minute at which point you’ll receive an automatic £100 penalty.
2. Use the marriage allowance if you can
The marriage allowance is not only available to married couples but also those in civil partnerships. For those mums who are just starting a new business venture, your expected turnover in the first year may be quite modest and so it would be worthwhile making the most out of the allowance. To be eligible, both you and your partner must fall under the basic rate income tax band.
3. Claim statutory maternity pay or maternity allowance
If you run your business as a limited company, then did you know that you can pay yourself statutory maternity pay and claim back 92% of the payment from HMRC so long as you pay yourself a director’s salary? If you’re self-employed as a sole trader however, you can still receive similar amounts of financial support from the government through maternity allowance. Or, if you’ve been helping your spouse with their business without receiving any pay such as helping them with the booking and administration, you could still be eligible to claim.
4. Don’t forget about National Insurance (NI) contributions
For mums that haven’t quite started working yet (because raising children and childcare is a full-time job in itself) we recommend taking some time to think about your NI contributions. Whilst you’re not earning, you won’t be making contributions which could mean reduced state benefits. If you’re able to, you can make voluntary contributions to top up any missed payments. Or for self-employed mums that are running a limited company, make sure you’re paying yourself a tax-efficient director’s salary that falls within the NI primary threshold.
5. Be aware that only tax-free childcare is available from the government now
Since 2018, the childcare vouchers scheme which enabled limited companies to provide employees with help towards the cost of childcare tax-free and NI-free has been closed to new applicants. It means that you shouldn’t be tempted to try and put the costs of childcare through your own limited company now as it’ll be treated as part of your income and therefore attract income tax and NI. Instead, you can register for tax-free childcare from the government which offers up to £2,000 a year.
6. Get yourself up to speed with accounting software
Choosing the right accounting software package and learning how to use it can seem daunting. If you’re pushing it to the bottom of the to-do list then we can only reassure you that once you’ve got your head around it, it will make a world of difference in both saving you time and letting you see clearly where your business finances are at. Not only that but you can claim the cost of your software subscriptions as a legitimate business expense and using software such as Xero can even help save you money on accountancy fees if you’re using an accountant for tax returns.
7. Save for your children’s future with Junior ISAs
If you’d like to make your income go that little bit further, why not start by building up a nest-egg for your children? Whether it’s to help with university fees, helping your child buy their first car, or even their first property, opening a Junior ISA on their behalf is one of the most tax-efficient ways of doing so. You can currently put in a maximum of £9,000 per year and your child will be able to access the funds once they turn 18.
8. Upgrade the family car to an electric vehicle
Now’s the best time to buy an electric car through your limited company. The government electric car grant offers £1,500 towards the cost of an electric car but is only available until 2023. Not only that, but purchasing the car through your limited company qualifies as a capital allowance. As it’s electric, 100% of the cost is tax-deductible from profits. What’s more, any personal use of the company car will have significantly lower benefit-in-kind rates. For self-employed mums that are operating as sole traders, you are also able to claim the cost of an electric vehicle as a capital allowance, but all personal use must be appropriately accounted for.
9. Get yourself the right space to work in
Whilst self-employed mums are multitaskers by nature, how productive would you really be working at home where there’s the temptation to do the laundry, hoover the floors, clean the bathrooms and tidy the kids’ room? Having a dedicated space can help (and you can also claim tax relief when you work from home), but other options which are tax-deductible include renting a co-working space. The cost of coffees whilst you sit in a coffee shop however is not an allowable business expense.
10. Get the help you need
Being a self-employed mum does not have to mean running a business all by yourself. You can even recruit your children and make it a family business! Hiring your first employee can also be a wonderful achievement and testament to the growth of your business, but be sure you’re completing your payroll correctly. Or for help with all of that, seek out expert advice for all things business, accounting, and taxes from a reputable and approachable accountant.