There are lots of ways to reduce your tax bill legally, whether you’re an employee or self-employed, a landlord, investor, or pensioner.
Here we explain how simple checks could boost your take-home earnings with minimal effort, and how to take advantage of tax reliefs and government schemes.
Over November and December, we will show simple tips and tricks that can help you cut your tax bill and put more pounds in your pocket.
Reduce your Income Tax
1. Check your tax code
Your tax code indicates how much tax HMRC will collect from your salary. You find it on your payslip.
Check your tax code each year, or after changing jobs, to make sure it’s correct for your situation.
If you’re on the wrong code, you may be entitled to pay less tax in coming months or receive a refund for previous years.
2. Claim Tax Credits
Tax credits provide extra money to those looking after children, disabled workers, and other workers on low incomes.
The two main types you can claim: working tax credits and child tax credits.
Keep in mind that you can’t claim tax credits if you already receive Universal Credit.
3. Pay 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.
4. Benefit from Marriage Allowance
Marriage allowance is a tax perk that benefits couples where one partner earns less than the personal allowance, £12,570.
If you’re married or in a civil partnership, you can transfer up to £1,260, potentially saving you up to £250. To qualify, the higher earner must be a basic-rate taxpayer.
5. Meet the Self Assessment deadline
If you’re one of the 12m people who need to submit a Self Assessment tax return, make sure you don’t miss the deadline – it’s a costly and avoidable mistake.
For online submissions, you have until 31 January 2022 to send in your 2020/21 return.
Miss the deadline and there’s an automatic £100 fine – even if you don’t owe any tax.
Cut tax on your savings
6. Maximise your personal savings allowance
In 2021/22, you can earn £1,000 of interest on savings tax-free if you’re a basic-rate taxpayer. If you’re a higher rate taxpayer, your tax-free allowance is £500.
You’ll only pay tax on savings income that exceeds this threshold.
This will no longer be deducted automatically by the savings provider. If tax is due, you’ll need to pay it via self-assessment or have it deducted via PAYE.
Keep in mind that you won’t have a savings allowance as an additional-rate (45 - 46%) taxpayer.
7. Make the most of your ISA Allowance
Everyone can take advantage of their annual tax-free ISA allowance. For the 2021/22 tax year, you can deposit up to £20,000 into ISA accounts. This is unchanged from 2020/21.
This can all be put in a cash ISA, a stocks, and shares ISA, or split between both cash and stocks and shares.
8. Use the Starter Rate for savings
If your income from a job or pension is below £12,570 in 2020/21, but you earn income through interest on savings, you may also qualify for the starter savings allowance.
Any interest you earn up to £5,000 is tax-free. This will be in addition to your personal savings allowance, meaning you could earn as much as £18,570 before paying tax.
Next month I will look at how to cut your tax bill in connection with investments and property. Contact us today to discuss any of the matters covered above.