Self-employed or a high earner? The key self-assessment tips to follow for January 2025

According to UK Parliament, there are more than 4 million self-employed people in the UK as of September 2024.

You’ll know, if you run a business or are a sole trader, that being self-employed comes with greater freedom and the chance to “be your own boss” – but with great power comes great responsibility. Unlike your employed peers, you need to pay all your own tax and National Insurance contributions (NICs).

If you’re yet to complete a tax return for the 2023/24 tax year, and are planning to “DIY” your self-assessment rather than asking an accountant to do it for you, we’re here to offer valuable tips. As we’ve spoken about in a previous article, it’s not just self-employed people who need to self-assess, so don’t assume these tips are not for you, even if you’re employed.

Here are three top tips for self-assessing this January.

1. Maximise the tax relief you claim on your pension contributions

When you contribute into a pension, the provider usually claims basic-rate (20%) tax relief from the government on your behalf. This is true for workplace pensions and personal pensions too. This tax relief essentially means your contributions “cost” you 20% less.

But what many people don’t realise is that, if you pay higher- or additional-rate Income Tax at 40% or 45% respectively, you can claim tax relief at your marginal rate through self-assessment. When you enter the gross amount you’ve paid in pension contributions for that tax year, HMRC will calculate whether you’re eligible for higher- or additional-rate relief and apply this accordingly to your overall bill.

Paying into a pension is crucial if you’re self-employed. Unlike your employed peers, who may make passive contributions, you need to actively put money away for your future.

2. Carry forward unused allowances and capital losses from previous years, where possible

Of course, you’ll want to pay the correct amount of tax, without overpaying.

When self-assessing, remember that you can carry forward some unused tax allowances from previous years.

For the 2023/24 tax year, you can carry forward any unused amount of the following allowances:

• The pensions Annual Allowance, for up to three tax years
• The annual exemption for financial gifts, for one tax year only
• The Marriage Allowance for Income Tax, for up to four tax years.

In addition, if you’re liable for Capital Gains Tax (CGT), remember that you can offset capital losses from the previous four tax years against gains made this year, in order to lessen your bill.

For instance, if you sold your second home or a business asset and incurred CGT in 2023/24, but in 2022/23 you sold non-ISA shares at a loss, you could use that previous loss to reduce your overall gain. This doesn’t just apply to self-employed individuals – anyone can do this through self-assessment.

The rules around carrying forward reliefs that could reduce your tax bill are complex. It may be wise to consult HMRC, your accountant, or your financial planner for guidance. But simply being aware that these actions are possible, and enacting them when filling in your tax return, could save you hard-earned wealth.

3. Claim all the expenses you’re entitled to

If you’ve recently set up your own company or are a high-earning executive, it’s likely that your work expenses eat into your personal budget.

Fortunately, your Income Tax bill could decrease if you claim all the allowable expenses available to you. These might include:

• Any expenses related to your car, if you use it for work
• Property rentals for business purposes
• Equipment, from expensive technology to pens and paper
• Training and development you undertook for work
• Pension contributions
• Rail or air travel for work trips only.

These could massively decrease the amount of Income Tax you’re liable to pay, and even bring you into a lower tax bracket.

In an example, if your gross income stood at £60,000, you’d pay higher-rate Income Tax on £9,729, as the higher-rate threshold stood at £50,271 in the 2023/24 tax year (including the tax-free Personal Allowance).

But, if you paid £5,000 into your pension, and claimed a further £5,000 in allowable expenses, you could bring your taxable income below the higher-rate threshold and only pay basic-rate Income Tax.

So, ensure you take the time to comb through your day-to-day business expenses and ensure you’ve claimed what you can, keeping more of your hard-earned wealth for yourself and your family while paying the correct amount of tax.

Get in touch

If you’re self-employed or a high earner, it could be wise to talk to a financial planner who can assess your circumstances and provide bespoke guidance. Whether you need help meeting your all-important goals, managing your earnings, or reducing your tax bill where possible, we’re on hand to help.

Email enquiries@prosserknowles.co.uk or request a callback from one of our advisers.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.