Here are 5 tips to reduce your tax bill.
The taxman cometh. No matter how much you make, your employer will take money from you to send to HMRC.
We’ve all learned that lesson by now. And unfortunately, paying taxes is not going away any time soon; in fact, if anything, it’s getting worse. You might find yourself getting a pay cut or even losing your job altogether if something goes wrong during an audit (which could happen even when everything is perfectly legal).
That’s why there are some things you can do throughout the year to reduce your tax bill and get more of what’s rightfully yours! Here are five tips on what every UK taxpayer should know about reducing their tax bill!
1) Your Tax Code Must Be 100% Correct
It’s very common for people to incorrectly assign their tax code which may lead to a huge tax bill. Remember that you should always enter your exact salary as per your contract; otherwise, you’re giving away money to Government that you deserve!
For example, if you only declare 75% of your actual salary, then it will appear as though you’re working fewer hours and earning less than what is actually true! This, in turn, will get your employer fined and subsequently hit with an audit… nobody wants that!
Make sure that whoever does your payroll has entered in all of your correct data, including taxes, bonus pay, overtime pay, etc.
2) Claim Your Entire Right to Tax Relief on Pension Contributions
This can be one of the simplest ways to reduce your tax bill if you’re a higher earner. A lot of people are often unsure about how pension contributions work and think that they don’t qualify.
Well, it’s actually not that complicated! If you’re over 18 and earn more than £50,000, then you could potentially save £1000+ per year by claiming some or all of your pension contributions back from Government.
It’s as simple as just logging in to HMRC Online Service Centre and asking for a form! In fact, they will ask you almost immediately after starting a new job… don’t ignore it!
2) Claim Your Charitable Donation Tax Credit
There are a lot of people out there who think that they can’t claim any tax relief if they make a donation to charity. Nothing could be further from the truth.
Many charitable organisations (both big and small) offer tax reliefs, but only if you claim it! It’s well worth taking some time out to investigate what you can get back in return for donating money because it might be more than you realise.
3) Utilise Your Individual Allowances to the Fullest To Reduce Your Tax Bill
A lot of people aren’t aware that they actually have multiple allowances depending on their circumstances. Firstly, you might be able to take full advantage of your basic personal allowance, which is currently £12,500 per year.
If you’re a higher earner, then your earnings will push you into higher tax brackets such as basic rate taxpayers or higher rate taxpayers, but it’s still important to remember that there are additional reliefs available for each bracket!
For example, if you earn over £100k, then you may not want to benefit from your personal allowance because it could push you into an even higher tax bracket; instead, invest some money in ISAs and pensions instead. You’ll find that there’s always something available if you do some research!
4) Ensure Correct Tax Treatment of Overseas Income
If you’re a foreign worker, then it’s very important to remember that all overseas income should be declared to HMRC and treated in exactly the same way as you’d treat any other UK income.
Don’t forget that there are plenty of ways for you to take full advantage of your allowances; for example, if you have dependents who are eligible to claim tax relief on childcare, then make sure that you declare it!
This can mean an extra few hundred pounds back into your pocket at year-end, so don’t be scared about doing something about it.
5) Choose the Best Employment Status
The way that you’re classed for tax purposes will make a huge difference to your annual earnings, so always make sure that you’re set up correctly. The most common options are being self-employed or employed (or any variation of those two).
As an employee, you’ll find that your employer deducts tax and National Insurance from your salary before it even hits your bank account. However, as a self-employed person, then you have to be responsible for 100% of all deductions yourself; if you fail to do so, then HMRC will assume that everything is completely above board and charge taxes accordingly!
I hope that you’ve enjoyed reading through my five simple ways to save some cash and reduce your tax bill. As I’m sure you can tell, it doesn’t have to be overly complicated.
The truth is that there are always ways for you to reduce your tax liability and put more money in your pocket; all it takes is a little bit of time and effort!
If you liked this blog post 5 tips to reduce your tax bill, then make sure to check out our last one: VAT Guide For Beginners.
If you want to discover how we can help your business, Quest Birmingham Accountants offers the following services: Tax Services, Self-Assessment, VAT, Payroll, New Business, R&D Tax Credits, Annual and Management Accounts, Tax Returns, Self-Employed Accounts, Business Planning, Business Tax, Accounts Services, Bookkeeping, Pensions, and UK Tax Deadlines.