Do you feel you are paying too much tax? You are not alone, read on to find lots of ways to reduce your tax bill legally.
Make sure you are getting any tax credits you are eligible for as this could put money back in your pocket with minimal effort. There are also ways you might be less aware of, such as how donating to charity can also make a difference to your tax bill.
Here are our top 10 tips that could help you cut down your tax bill.
1. Get the right tax code
Always check your tax code each year (which you will find on your payslip). If you are on the wrong code, then you may be paying too much tax.
2. Can you get tax credits?
Tax credits are tax-free state benefits that provide extra money to those looking after children, disabled workers and other workers on low incomes. The two main tax credits are child tax credits and working tax credits.
3. Make the most of your ISA allowance
Use your tax-free ISA allowance. For the 2017/2018 tax year, the annual limit is £20,000.
You can split your allowance across a Stocks & Shares ISA and Cash ISA or invest it all in either one.
4. Paying into a pension scheme
Contributions to your employer’s pension scheme (including any additional voluntary contributions you make) can be made from your gross pay, before any tax is charged. The government will top up your pension with tax relief, giving you a free bonus for saving for retirement.
5. Maximise your personal savings allowance
The first £1,000 of interest you receive from savings is tax-free for basic 20% taxpayers. If you are a higher-rate taxpayer, you will be able to earn £500 interest tax free. But if you are a 45% rate tax payer you will not get a personal savings allowance.
Only when your savings income exceeds the allowance is any tax is due on it. This will no longer be deducted at source – if tax is due, you can pay it via self-assessment or have it deducted via PAYE through an adjustment in your tax code.
6. Tax return deadlines
Don’t miss the 31 October deadline if you want to make a paper tax return. You can do your tax online up to 31 January, but paper tax returns need to be in three months earlier than online tax returns to avoid a £100 fine.
For more details see Tax returns.
7. Use the £5,000 savings allowance
If your income from your job or pension falls below the £11,500 personal allowance, but you earn income through interest on savings, you can qualify for the savings allowance.
Interest of up to £5,000 is paid free of income tax in addition to your personal allowance, meaning you could earn as much as £16,500 before paying tax.
8. Marriage allowance
From 6 April 2017, married couples and civil partners can transfer £1,150 of personal allowance from the lower-earning partner to the higher earner, saving them up to £230 in tax.
This is only available if the higher earner is a 20% taxpayer – if they are a 40% tax earner then this is not possible.
9. Charitable donations
Making donations to charity is tax free. Either yourself or the charity can claim the tax back through Gift Aid. If you pay higher or additional-rate tax, you can also claim back the difference between the basic and higher rate of income tax on any Gift Aid donations.
To do this you need to claim through your self-assessment tax return or ask HMRC to adjust your tax code. You will need to do this by calling them and asking for a P810 form.
Keep records showing the date and amount you have donated.
10. Mileage Allowance
Staff who are paid a mileage allowance to use their own car can offset some cash if their employer pays them less per mile than the permitted rate.
The rate at present is 45p per mile, so if you are paid less than this for the first 10,000 miles travelled for business you can claim the difference. Any business miles travelled over the first 10,000 miles you can claim 25p per mile.
- These are just a few ways of saving on tax – but there are plenty more. Another example; if you are self-employed you can claim the running costs of a car but not the cost of buying one. If you use the same car privately, you can claim a proportion of the total costs