LIMITING YOUR LIABILITY

Entrepreneurs are always keen to reduce their tax liability – particularly when they’re calculating how much they’re due to pay and wondering how to scrape it together. There are often ways to reduce your liability that are right in front of you when filling out your tax return – you just might not have been guided towards them. In a recent article, we looked at obvious business expenses such as travel and equipment. However, if you are operating as a sole trader, it’s worth looking at a number of other options.

 

For example, if there are customers that owe you money, you don’t need to wait until the company concerned goes into liquidation to write it off. If you’re not confident about recovering that debt, you should consider putting in a provision for a write-down. Rather than waiting for the customer to confirm there is no chance of being paid, you can reduce your taxable income now by providing for a doubtful debt. If it turns out that the customer paid the bad debt, you can bring that back into the accounts as a bad debt recovered. But you’re exposing yourself to a lower tax bill by making provision for specific bad debts now.

 

In the event that you’re selected for a Revenue audit, there may be eyebrows raised if you’ve reported a high volume of bad debts that subsequently end up being discharged in full. But if there are genuinely doubtful debtors that you’re not sure will pay up in the next six months, you are perfectly entitled to provide for a write-down. Just make sure that you have copies of correspondence and emails with customers on your files.

 

Another obvious option is a pension payment. If you’ve put money towards your pension, you can relate that retrospectively back to last year’s income. The issue is that people need to remember the deadline of October 31 – not November 15, the deadline for filing and paying online. You need to have made a payment into your personal pension plan by then. If you’re unsure about pension payments and what to do, we give out a lot of advice in this area and are happy to help.

 

Also check carefully whether you have received tax credits at source on your mortgage interest. In general, the banks aren’t terribly conspicuous about notifying customers that these can be given at source, so check make sure to look into it yourself. Though this is being phased out by 2017, there is still relief available, particularly for first time buyers.

 

There’s also the old perennial of medical expenses. 20% of anything not covered by insurance can be claimed, and sometimes a person will have a dependent relative living in the house. Expenses incurred in looking after them can be claimed as well. Tuition and college fees for your children should be looked at too. If you have a covenant giving an elderly relative living expenses, you can also note that to reduce your tax liability.

 

Some of these issues are, of course, quite complex, and it’s worth seeking professional advice if you’re unsure about any aspect of your return. Do feel free to contact us if you need some quick, well-informed advice.

 

If you have a question to put to our experts, please click here, or connect with us on twitter here.