How to Pay Less Taxes | 33 Tax-Saving Tips UK
Updated: Aug 16
There are many ways to legally lower your tax bill, whether you are an employee, business owner, homeowner, investor, or a retired person. All you have to do is to check these boxes and with these simple checks, you can reduce your tax payable amount 100% legally and legitimately. We will guide you on how to take advantage of tax breaks of government programs. Here are 34 simple tips and tricks that can help you cut your tax bill you can spend the money, so saved, elsewhere. Not all the points may be applicable in your particular circumstances. So choose the ones which apply to you.
1. Check Your Tax Code
Your tax code shows the amount of tax that HMRC will deduct from your paycheck. You can find it on your payslip. Check your tax code every year or after you change jobs to make sure it suits your situation. If you were using the wrong code, you could pay less tax over the next few months or get a refund from previous years by correcting it.
2. Look for Tax Exemptions
Tax credits provide additional funding for caregivers, disabled workers, and other low-income workers. The two main types that you can get are income tax deductions and child allowances. Note that if you have already received a public credit, you will not be eligible for tax credits.
3. Paying Into Retirement Provision
You can deduct the contributions to your employer's company pension scheme (including additional voluntary contributions) from your gross wage before tax is levied. The state will add a tax break to your pension so that you can get a free reward for saving for retirement. You can use the pension tax credit calculator to calculate how much you can save.
4. Enjoy the Benefits of Marriage
The marriage allowance is a tax advantage that benefits the spouse when one spouse receives less than the personal benefit. If you are married or in a civil partnership, you can transfer the unused personal benefits of the low-income partner to the higher-income person. To be eligible, the highest source of income must be a contributor at the base rate.
5. Note the Deadline for the Tax Return
If you are among the 12 million people who have to check their own tax returns, make sure you don't miss the deadline; it is a costly mistake and easy to avoid. To submit your return online, you have until January 31, 2022, to submit your return in the period 2020-2021. However, if you want to submit the application on paper, you must submit it before October 31, 2021. Missing the deadline will incur an automatic £ 100 penalty even though you owe no tax. Let PTA help you pay your tax on time.
6. Collecting Over-Paid Tax
If you are not a taxpayer or if your income drops unexpectedly for a year, you may have to pay more tax than you should as HMRC assumes your personal allowance is used evenly every month. To apply, fill out the HMRC R40 form or give them a call.
7. Get a Subscription Loan
Some employers offer you a tax-free loan to purchase your membership, which can save you hundreds on travel expenses. Ask your employer if this is part of the plan.
8. Tax-free for Childcare
With a tax-deductible childcare plan, you can claim 25% of your childcare costs, up to £ 500 every three months. You must meet the relevant criteria, including a child under 11 years old with an income of less than £ 100,000.
9. Get a Company Car
If you are entitled to a company vehicle, consider using it and you will be able to claim its expenses from your tax bill.
10. Switch to a Low-Emission Vehicle
When replacing your company's car, consider a low-emission model. These are now taxed lower on their list price than cars with a high CO2 rate.
11. Maximize Your Personal Savings
You can earn £ 1,000 in interest on tax-free savings over the 2021-2022 period. If you are a higher rate taxpayer, your benefit will be £ 500. You only pay taxes on interest income that exceeds this limit. Please note that as an additional contributor you will not receive a savings allowance (45%).
12. Make the Most of the ISA Allowance
Anyone can claim the tax-free annual ISA allowance. For Fiscal Year 2021-22, you can deposit up to £ 20,000 into ISA accounts.
13. Use the Opening Rates on Savings
If your earned or retirement income is less than £ 12,570 in 2020-2021 but you have interest income from savings, you may also be eligible for an initial savings allowance. All interest up to € 5,000 is tax-deductible. This is on top of your personal savings, which means you can earn up to £ 18,570 before taxes are paid.
14. Tax Deducted Expenses
A large portion of the expenses you incur running your business can be deducted from your income, lowering your overall tax. It can be fuel, phone, or managing your home office. Find out what types of expenses you can claim in our guide to tax-deductible expenses.
15. Spending on Your Vehicles
Usually, you can claim the running costs of the vehicle you use for your business (but not the cost of buying it). If you use the same vehicle privately, you can claim part of the total costs. To do this, you have to collect all of your annual car expenses and calculate the percentage of business kilometers traveled or claim a fixed mileage allowance for business trips.
16. Increase Self-Employed Cash Flow
As a business owner, you can choose the end date of your fiscal year and it pays to choose carefully. If you end the tax year early, you will have more time to tax your income. In other words, the higher your income, the slower your tax burden will increase. The longer you have time, the less difficult it is to pay your tax bill on time.
17. Annual Losses
If you suffer a loss in a financial year, you can bring it forward and offset it with a more successful annual profit. This will reduce your taxable income. You can read more about this in our guide to paying taxes as a self-employed person.
18. Advance Payments
Basically, the self-employed have to pay taxes in two advance payments: in January and then in July. The amount due is based on the tax invoice for the previous year. So if you earn less in 2021/22 than in the previous year, you can request a reduction in your advance payments. You must submit the SA303 form to HMRC online or by mail.
19. Dividend Support
Each year you can earn a certain amount of distributed income before paying taxes. You can earn up to £ 2,000 tax-free each year.
20. Exemption on Capital Gains Tax (CGT)
Married couples and domestic partners who share property can apply for a double allowance of £ 24,600. Remember, if you do not take advantage of the tax withholding during the fiscal year, it will be lost forever.
21. Transfer Assets to Your Spouse
If you transfer property to your low-income spouse or partner, you will not be subject to capital gains tax as your low-income spouse may be enjoying more favorable tax rates. Therefore, it can be helpful to transfer savings and investments to your spouse or partner if they pay a lower tax rate than you.
22. Issa Junior
By giving gifts to your children, you can avoid paying taxes on interest by paying Junior Isas. Junior Isas' annual allowance is £ 9,000 for the period 2021-2022.
23. Change to participations
If their investments outside of the ESA generate significant income, taxpayers with higher and additional tax rates can cut their bills by opting for investments that are aimed at capital growth. In addition to the annual capital gains exemption (£ 12,300 in 2021-2022), you can benefit from reduced tax rates. Taxpayers with higher tax rates pay 20% on capital gains but 32.5% on dividend income.
24. Reduce the Inheritance Tax Bill in the Future with Gifts
Gifts do not count against your inheritance tax bill if you are still alive for seven years after your donation. You can also donate up to £ 3,000 a year without worrying about taxes and multiple giveaways under £ 250 as long as they're not for the same person
25. Investing in Institutional Investment Programs
In order to encourage investment in companies in the early stages, the government offers additional tax breaks for certain investments. When you buy shares in a qualifying company, you can deduct 30% of your investment from your income tax bill for the year. The amount you can invest each year is £ 1 million, saving you up to £ 300,000 in income taxes.
26. Get the Most Out Of Venture Capital Trusts
Venture capital trusts (VCTs) also offer a 30% tax credit, but only for investments up to £ 200,000. VCTs are a specialized type of mutual fund, meaning that investments can be made by. are managed by a fund manager and are not chosen by you.
27. Buy Shares In Your Company
Whether your employer offers free shares or the right to purchase shares at preferential prices through a government-approved program, these shares will be exempted from income tax. However, you will likely have to pay capital gains taxes if you ever sell your stocks.
28. Use the "Rent a Room" Option
Rent-a-Room allows you to receive up to £ 7,500 in annual rent from a lodger, duty-free. This only applies if you rent a furnished place in your own apartment where you are living. If two people sharing the property benefit from this plan, they can claim only £ 3,750 each.
29. Property Owner's Expenses
When you rent a property, you can deduct a number of expenses from your taxable income. These include salaries for gardeners and cleaners, rental fees, basic rents and utilities, accountant fees, and home insurance, etc.
30. Replacement of Local Items by Landlord
Landlords can claim tax credits for funds spent on replacing "local items" in their furnished rental properties. The types of items for which you can apply for an exemption include beds, carpets, dishes or cutlery, sofas, curtains, refrigerators, and other appliances.
31. Tax Credit on Your Installment Mortgage
When you take out a mortgage to buy a rental property, you can claim a 20% tax deduction on mortgage interest.
32. Reduce the CGT for Rental Properties
Homeowners are generally subject to capital gains tax if they make a profit from the sale of a rented property. However, if the property has been your primary residence in the past, you can apply for a tax credit for the last nine months of ownership.
33. Social Security
You no longer have to pay social security contributions if you continue to work after the legal retirement age (currently 65). So make sure your employer is aware and adjust your salary. More information: National insurance and state pensions.