Tax is considered to be one of the biggest expense that you have to pay. But you can legally reduce your tax bill. All you need to do is take advantage of the tax allowances, exemptions and government schemes.
Here 123Financials are sharing 16 tips and tricks that you can use to pay less tax and save your money are
- Use your personal allowance
Personal allowance refers to the tax-free allowance that every person has. As of April 2021, the standard personal allowance is £12,570. This implies that you do not have to pay tax on the initial income of £12,570.
If your income is more than £100,000, then your personal allowance reduces.
- Sticking to the tax return deadline
Missing the tax return deadline can get you charged with HMRC penalties. Thus, you should avoid pushing off the filing of tax returns until the last moment.
- Stay updated about your industry
It is essential to stay updated about your industry by reading newsletters and staying in touch with your trade bodies. This can help you to benefit from the special allowances sanctioned by HMRC.
An example of one such allowance is the uniform allowance.
- Verify your tax code
HMRC issues a tax code to each person. You should check your tax code every year to verify whether you have paid the right amount of tax or not.
Being on the wrong code allows you to claim a tax refund for the past years and pay less tax in the upcoming months.
- Take advantage of the marriage allowance
You can take advantage of the marriage allowance if either your or your partner’s earning is less than the personal allowance. The marriage allowance allows the partner with the lower income to transfer his/her unused personal allowance to the partner with the higher income.
- Contribute to a pension scheme
You can decide to save for retirement by paying into your employer’s pension scheme. If you make contributions from your gross pay before the imposition of any tax, you can benefit from the tax relief provided by the government.
- Make use of tax credits
There are two types of tax credits that you can claim:-
- Child tax credit
Irrespective of your working status, you can claim the child tax credit if you are responsible for a child.
- Working tax credit
If you have a low income, then you can take the assistance of the working tax credit. To become eligible for this, you must work a set amount of hours every week.
- Switch to a low emission car
Switching to a low emission car has its own benefits. These car models are environmentally friendly and subject to a lower rate of taxation than the usual models having a higher CO2 rating.
- Getting a company car
When you get a company car, the car’s monetary value gets added to your pay. This can increase the amount of tax that you pay.
If you take a company car (also called benefit in kind or BIK tax), your tax rate depends on various factors like its list price, model, type of fuel that it uses, and whether it’s a low emission car or not.
- Make use of the tax-free childcare scheme
Launched in April 2017, the tax-free childcare is a government-backed scheme that allows you to reclaim your childcare costs up to 25% (up to £500 every three months).
To become eligible for this scheme, you have to ensure that:-
- You have a child aged 11 or under.
- Both you and your partner must be working.
- The earnings of you or your partner should not more than £1,00,000.
- Choose the right accounting end year
You must decide when your accounting year ends after careful consideration. If you decide on a year-end accounting date that is earlier in the tax year, you will be able to pay your tax bills timely without much trouble.
- Claim tax-deductible expenses
If you are self-employed, you can decrease your taxable income by claiming tax-deductible expenses. To bring down your tax bill, you can deduct the expenses incurred in your business from your profits.
Some of the business expenses that you can claim with HMRC are:-
- General maintenance expenses
- Rent (if you are using business premises)
- Insurance and council tax (if you are working from home)
- Travel and lodging expenses on business trips
- Car expenses including petrol, servicing, insurance, and more (only if the car is used for commercial purposes)
- Employee childcare provision
- Costs incurred in training of the employees
- Pension and insurance benefits provided to the employees
- Claim back overpaid taxes
HMRC assumes that you use your personal allowance uniformly every month. Thus, if you have an unexpected low income during a year and you have been overtaxed, then you can reach out to HMRC to reclaim the overpaid taxes.
- Offset the annual loss
You can pay less tax by carrying forward a loss from one tax year to the next. This will help you to counterbalance the loss against the profits from a more fortunate year.
- Consider charity or gift aid
Through charity, you can not only help the people in need, but you can also help yourself as giving to charity is tax-free.
You can also get an instant 20% tax relief for any gift under the gift aid scheme, and if you pay additional rate tax, you can also reclaim the difference.
- Consult your accountant
Accountants are your trusted consultants and can guide you on paying less tax legally. You can hire an accountant familiar with the tips and tricks that can help you save on tax.