In some ways, this isn’t the most wonderful time of the year. With a tax deadline looming, there’s always that nagging feeling that you could be saving money on your tax bill.
Well, the good news is, you can. And you don’t need to be a major corporation or well-known celebrity with a dodgy loophole to do so. There are many different ways to minimise your tax liability, and they’re all perfectly legal.
In this blog post, we take a brief look at 5 legal tips and tricks to pay less tax.
How to Legally Save Tax
1. Use Your Savings
Thanks to the Personal Savings Allowance, you can earn up to £1,000 in savings income without paying tax if you’re a basic-rate taxpayer. And if you’re a higher-rate taxpayer, you can earn up to £500 tax-free.
You will only be liable on tax from savings income if it exceeds the allowance. And interest from your Individual Savings Account (ISA) doesn’t count towards your Personal Savings Allowance as it’s already tax-free.
2. Use Your Pension
If you pay more money into your pension, you will lower your tax liabilities. Typically this is handled by an employer, deducting pension payments from wages prior to calculating tax due.
This means that if you earn £30,000 a year, and you pay an extra £1,000 into your pension, only £29,000 will be considered as taxable income. In essence, you’d be paying £200 less tax.
For self-employed individuals, it works a little differently. If you make a contribution to your pension, the pension firm will claim money back on your behalf, adding it back to the pension pot.
3. Claim Expenses
This tip is very much ‘low-hanging fruit’ for self-employed individuals and private landlords. Before you submit your tax return, you must be absolutely certain that you’ve claimed for all legitimate business expenses. This can go some way towards lowering your tax bill.
By working with a qualified accountant, you can identify business expenses that you may have overlooked. This can include anything from travel costs, stationery, and using your home as an office, to wear and tear on a rental property with regards to private landlords.
4. Get Married
Of course, there are plenty of reasons to get married that don’t involve lowering your tax bill, but let’s consider it an added bonus. Since 2015, couples in a marriage or civil partnership in which one person pays no tax because their income is below the personal allowance (£11,500 for 2017/18) can transfer £1,150 of that allowance to their tax-paying partner.
This reduces their tax bill by £230.
As per the HMRC website, you can get Marriage Allowance if all the following apply:
- you’re married or in a civil partnership
- you don’t earn anything or your income is £11,500 or less
- your partner’s income is between £11,501 and £45,000 (or £43,000 if you’re in Scotland)
You can also backdate your claim to include any tax year since 5 April 2015.
5. Donate to Charity
Finally, if you’re a higher-rate or additional rate taxpayer you can lower your tax bill by claiming back the difference between the rate you pay and basic-rate on your donation.
Here’s the example from the HMRC website:
You donate £100 to charity – they claim Gift Aid to make your donation £125. You pay 40% tax so you can personally claim back £25.00 (£125 x 20%).
We Can Help You Pay Less Tax
Tax avoidance schemes are complex and fraught with risk. As we’ve seen over the past 12 months, many notable individuals and companies have come unstuck after attempting to avoid paying their fair share.
But as we’ve illustrated above, you don’t need fancy financial advisors to lower your tax bill. Work with a qualified accountant and identify the legal ways to pay less tax.
We can help you do just that via one of our Super 6 services, the aptly named Pay Less Tax.
Contact us today to speak with one of our friendly advisors to get started.