Most of us would like to pay a bit less tax. We all recognise that taxation is a necessary evil; it provides access to the infrastructure and services that we have come to expect from a modern state.
However, an ever-increasing tax bill can become a significant burden – especially during already strained financial periods like that in which we currently find ourselves. Try our top tax saving tips to see if you can cut your tax bill. After all, any saving, no matter how small, means a little extra cash in your pocket.
1. Check Your Tax Code: Almost every employee, and most pensioners, will have aTax Code. This code normally consists of one letter and a few numbers. If your code is a number followed by a letter, multiplying the number by 10 will show you how much you can earn in the year before you have to pay tax. The letters have varying meanings and HM Revenue & Customs frequently assign incorrect tax codes. Make sure that yours is right in order to avoid paying too much tax.
2. Investigate Rebates: Many of those eligible for a tax rebate are unaware of their eligibility. If you have been placed on the Emergency Rate at any period, there is a high chance that HMRC owes you money.
3. Use All of Your Allowances: Most individuals will receive their Personal Allowances for Income Tax and National Insurance automatically. However, there are numerous other allowances to which you may be entitled but which you may not be claiming. For example, Mileage Allowances for business use of your car can reduce your tax bill significantly.
4. Claim Tax Credits: The Tax Credit system can sometimes appear rather opaque, with many people failing to understand what they are entitled to. HMRC currently offer around £3.7 billion of Tax Credits, much of which goes unclaimed. There are a number of websites that will identify credits and benefits to which you are entitled after you answer a few questions regarding your circumstances.
5. Plan for IHT: Inheritance Tax (IHT) is one of the most despised and potentially most expensive forms of taxation. The tiny number of individuals who make any effort to reduce their IHT burden is therefore surprising. Simple steps like Making A Will can drastically reduce an IHT bill, and require very little work.
6. Put Non-Earners Allowances to Work: If your spouse does not earn, or earns less than their personal allowance, you should consider moving any income generating assets into their ownership. Regardless of whether or they are earning, they will still qualify for their personal allowance. Making use of this could save you thousands every year.
7. Choose Tax Efficient Savings: Savings schemes are an excellent way to reduce your tax bill, and build a nest egg for the future. Simple steps like using up your ISA allowance can cut significant amounts off your tax liabilities. You may also wish to consider a company share scheme, which tend to be highly tax efficient and may involve discount shares.
8. Sort your Self Assessment: If you are a self-assessment taxpayer, completing your return early can result in big savings. In the first instance, if you get your return in by the end of October, HMRC will calculate your tax for you. However, if you miss the 31st January deadline, you will automatically be fined £100.
9. Use your Pension: Pension contributions are exempt from tax. This means that you can reduce your income tax bill by putting extra cash into your pension. The money will be deducted from your pre-tax income.
10. Hire an Accountant: If your tax affairs are in any way complex, Hiring A Good Accountant is likely to save you money. Their retainer fees can seem expensive, but a knowledgeable tax expert will pay for themselves immediately.