Every contractor knows the value of a proactive accountant and at Contracting PLUS, your Dedicated Account Manager will always help you determine what expenses you can legitimately claim as a business expense. However, there’s never any harm going over some of the ‘old reliables’ – you’d be surprised how quickly some smart planning can add up to substantial tax savings.
1. Claim your Medical Expenses
According to the CSO, the average Irish Family spends about €2500 a year on Medical costs. If these aren’t covered by a Health Insurance plan, then you can claim up to 20% of these back. That’s €500 a year.
2. Have your Limited Company pay for your Club membership
Let’s say your annual subscription for your sporting hobby is €1,000. Your Personal Limited Company can pay this cost for you. This will be deemed a ‘benefit’ to you as a director/employee and BIK (Benefit in Kind) tax will be charged. However, it would still lead to a saving of up to €563. (Caveat: this will only be of benefit if you are retaining funds in your limited company and not taking your full invoice value as a salary payment).
3. Make sure to avail of the Small Benefits Scheme
As an employee/Director of your own limited company, the business can give you a gift of one voucher in a year up to the value of €500. This is a totally tax free gift. In order for you to have €500 cash in your pocket, you’d need to earn €1042. Availing of this benefit will save you €542 in tax every year.
4. Have your Limited Company pay for your Personal Health Insurance
Health Insurance is a benefit provided by many employers and those who avail of it will know there’s always a BIK (Benefit in Kind) line on your payslip. It’s the same principle with your own limited company. When the company pays the premium for you, the BIK is applied to your pay. The tax saving for an annual premium of €1500 is up to €541.
5. Pay into a Company Pension
No tax saving list would be complete without this. Pension funding is extremely attractive for contractors as you can process the pension payments through your company and get tax relief up to 51%. If we assume an average contractor day rate of €400, the annual earnings could be in the region of €90,000. We’d always recommend putting 8% of earnings into a pension. In this example that would be a tax saving of up to €3672.
6. Rent a room relief
This might be a strange one to include because you might not want to share your home with strangers all year round. But this is a clever one for Contractors who like to take the summer months off to be with their kids. There are many English Language schools that look for families to take in students for a month or more while they attend an English Language course. Hopefully we’ll be back to some normality with a Covid vaccine by summer 2021. You could earn about €1200 per student per month. If you’ve a spare twin room and you’re going to be around the house during the summer holidays, then the income you earn from renting to students is tax-free up to a total value of €14,000. This does not apply to short-term lettings through online booking sites. For the purposes of this example, you could earn €4,800 tax free over 2 months.
So we’re up to €10,618 saved. There are more ways to legitimately save tax, and we’ll write another article soon with more hints and tips.
If you’re contracting and you want to work with Accountants that proactively advise you ways to save tax, then talk to us and see how much you could save.
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