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As a contractor, it’s always important to be ready for the year ahead, but when it comes to the 2022/23 financial year it’s even more vital. That’s because of the cost of living crisis is impacting everyone in the UK, meaning your food, energy bills, travel and general monthly outgoings are costing you more. On top of that, the recent autumn Statement has done little to support contractors.

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 tax 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 made personally can be used to reduce or eliminate the amount of tax you pay at the higher tax rates while contributions made through your company can be a tax efficient way to get money from your business, provide for your future and reduce your Corportion Tax bill. 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Dividends should be considered for the year as a whole, with the timings and amounts of profits withdrawn from the business carefully planned.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 a business expenses system

Claiming tax relief on allowable business expenses reduces your companies Corporation Tax bill, saving £19 for every £100 spent. It’s sensible to limit claims by only spending money where you need to as spending £100 just to save £19 isn’t sensible planning. To ensure that no potential claims are being forgotten about, make sure you have a system in place to keep track of your business 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. It’s sensible to consider maximising your income within the Basic Rate Threshold as this is often the most tax efficient way to access the funds that have built up in your company.

Engage the right accountancy help

Tax planning should go beyond organising your end of year company accounts and filing your tax return. It should be an ongoing process that enables you to run your business efficiently and requires expert accountancy advice. Putting such accounting services in place now will provide reassurance that you’re maximising the possibilities throughout the upcoming financial year.

There is a lot to take into consideration when it comes to tax planning. If you need help preparing for the tax year ahead, contact Intouch Accounting, the best accountants for contractors, for further assistance.

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