If you’ve made it here, we’re about to let you in on some of our best tips to reduce your tax bill.
These tips aren’t just for high earners or people liable to pay capital gains tax. If you’re a basic rate taxpayer, there are lots of handy tips on how to pay less tax.
Let’s begin with a simple one.
The first way to ensure you are paying the right amount of tax is to ensure that your tax code is correct. This code is used by your employer to calculate your tax bill. The code must be correct as it will refer to your personal allowance. This is simply the amount of money you can earn without needing to pay any tax on it.
Each time your situation changes – for example, when you change jobs – you need to check that you have the correct code. We also suggest checking the code annually to ensure you receive the correct personal allowance.
Tax credits are a useful way to reduce your tax bill as long as you fall into an eligible category.
Working credits are available to a range of people depending on their situation. Single people and couples can save tax with credits if they are over 25 and work more than 30 hours weekly. Disabled people and parents must be at least 16 and work at least 16 hours to claim tax relief credits.
Anyone who is the main carer for a child can claim child tax credits. This money will be paid until the child is 16.
From 2024, these schemes will be replaced by Universal Credit.
If you are a registered company and you are innovating and spending money on a project you may be able to claim back money on what’s called Research & Development Credits, Here is a list of companies that have previously claimed with our team:
Anyone who makes a personal pension contribution is eligible for tax relief. The amount you receive will depend on your earnings, with a higher rate taxpayer earning more back than basic rate taxpayers.
In most cases, pension contributions will be boosted by 20% when you make them. Some employers will ensure that your pension contributions receive this boost when they come out of your pay. This isn’t always the case, though. Check if you’re receiving the extra amount on your pension contributions. If not, then contact HMRC and make a claim. You have four years to do so.
Marriage Allowance is available to anyone who is legally married or in a civil partnership. It is one of the best tax relief schemes for couples.
Through this scheme, one spouse or civil partner can transfer a portion of their income tax personal allowance to their spouse or civil partner. This is capped at 10%.
If both are paying income tax, then this is a good way to double your tax-free allowance, benefiting both of you.
It’s important to note that this differs from “Married Couple’s Allowance”. That is a different tax break, which is only available if one-half of the couple was born before 6.4.1935.
Also, higher-rate taxpayers cannot take advantage of this scheme either.
Tax planning doesn’t just mean searching for clever tax reliefs. It can also apply to completing your tax return online. If you’re required to complete a self-assessment tax return, then a simple way to pay less is to ensure that you meet the deadline.
For the many people who don’t do this each year, then they’re liable to pay a fine, which can end up costing £1,100.
In certain circumstances, you may have paid more tax than during the tax year you needed to. This can occur if you shouldn’t be registered to pay tax. It can also happen if you lose your job, change your job, or are self-employed. A tax rebate should be claimed in these circumstances.
The reason this happens is because of how your personal allowance is calculated. It is based on a standard, fully-employed, salary worker who earns the same amount monthly. This isn’t necessarily always the case.
You must fill in the R40 form to claim back tax paid.
Making a charitable donation doesn’t just offer you tax benefits; it’s also beneficial for charities and registered Community Sports Clubs. This is because of Gift Aid, which you can add to your donation if you pay income tax. Gift Aid means charities can claim tax relief of 25p on every £1 that is donated to them.
To take advantage of tax savings with donations to charities, you need to make sure to keep a record of all donations you make. Another perk of this scheme is that you don’t just benefit when submitting the previous year’s tax bill. You can claim for the current tax year too.
At the time of writing, the current tax-free personal allowance is £12,500 per tax year. This amount is for a basic rate taxpayer. If you pay a higher rate, then that amount is reduced if you earn more than £100k net in a tax year.
Married couples have an excellent option to take advantage of your personal allowance if one partner pays a high rate and the other isn’t required to pay tax. To gain extra tax relief, you can put income-producing assets in the non-tax payer’s name.
You should also take advantage of your personal savings allowance. Your income will define your personal savings allowance. Depending on your tax band, you can earn either £500 (higher rate taxpayers) or £1000 (basic rate taxpayers) of interest on savings income without paying tax on it.
This scheme for lowering tax on savings income is not available to anyone who falls into the additional-rate taxpayer band.
Some people don’t have the choice to alter their employment status, while others have the ability to register as either self-employed or employed.
If you can register as self-employed, you should consider if this will be the best status for you. Benefits for the self-employed can be outweighed by drawbacks depending on your circumstances. This is especially true regarding pension income, as more relief is offered to the employed than the self-employed in this regard.
Over the past few decades, more and more people have invested in a second property. After all, you not only benefit from the increase in the property value but also the rental income.
The problems can arise when you sell the rental property and find yourself paying a huge capital gains tax bill. Smart planning is required when selling or gifting a second property. It’s a good idea to speak to a tax consultant before disposing of your property so that you don’t give most of your profits to the tax office.
It’s also important to look at tax relief opportunities if you have a mortgage on your second property, as you can claim back 20% of mortgage interest.
If you are liable to pay CGT, you should know that you have a capital gains tax allowance each tax year. This has a cap of £12,300. No tax must be paid on capital gains beneath this amount.
We recommend that you try to make the most of this amount. That’s because any unused personal allowance is lost at the end of the year. Quite literally, you need to use it or lose it.
The United Kingdom has agreements with many countries that ensure you don’t pay tax twice on the same income. If you have taxable income or savings income abroad, ensure you’re not paying tax on it in both countries.
Employee tax benefits are provided by both the government and your employer. They’re a simple way to provide you with further tax relief. There are plenty available, but some common tax perks for employees include:
The ability to exchange part of your income for a company car.
A tax-free loan to pay for a transport ticket, such as the season ticket in London.
Some people also have tax-deductible expenses if they primarily work from home rather than in an office. Of course, you need to prove they are business expenses.
In short, yes. There’s really no need to pay more tax than you need to. You can reduce your tax bill purely by taking advantage of the government’s schemes for people in your circumstances. It’s important to note that how much tax you pay depends on researching what is available to you.
For example, there is nothing wrong with clever inheritance tax planning to reduce the inheritance tax bill for your descendants. It is just that many people don’t plan well when it comes to inheritance tax.
Restricted stock units are sometimes given to an employee by a company they are employed by. You are often liable to pay capital gains tax on them depending on your dividend allowance. To save tax on dividend income, you can either sell them or put them in your spouse’s name.
The easiest way to pay less tax when you’re a company owner is to pay up to £10k as a pension contribution.
Tax rates for companies are very high, with 19% of your profits needing to be paid as tax. The money that’s paid into a pension is not taxed, unlike income tax or dividend tax. If you pay that money to yourself as a salary, you’re liable to pay income tax on it.
As you’ll know, your tax band is dependent on your earnings. Some people will end up in the nightmare scenario of earning slightly more than a tax threshold.
You can pay into a pension to put yourself in the band below your current one. This money is tax-free and counts toward national insurance contributions. Therefore, you get to keep that money for the future while also lowering your tax bill and national insurance for now, as you can then pay more favourable income tax rates.
One downside to placing much of your money into pensions is that there is a lifetime allowance. You have four options to avoid this charge.
First, you can simply take the tax-free money out of the pension. If you do this, you might consider using the cash for an alternative tax-free investment.
Another option is also to remove the defined benefit pension ahead of schedule.
It can also be worth looking into protection for your lifetime allowance.
These options all require careful thought. Speaking to an expert will help you make the correct decision.
Anyone in the high tax bands is limited on how much can be paid into a pension scheme during a year. The current limit is £4k.
To avoid an unwanted charge, you can see if you have a tax-free allowance from previous years that you can use.
Other than this, it might simply be a better option to see if you can increase your salary at the cost of your pension payments. Of course, this will depend on your employer.
So, there you have it. We hope you’re able to apply these tips to reduce your tax bill. Contact our team today for more assistance.
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Kasra Dash Director
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