Ways to save on your tax bill
It’s always a good idea to have a thorough look at your tax tactics. Substantial savings can be put in place if you evaluate what you paid the previous tax year, and how that could be reduced when it comes to your next Self-Assessment.
Here are our tips to save on your tax bill:
Marriage allowance benefits
If you or your spouse/civil partner earn less than £11,850 a year you may be able to transfer some of your personal allowance. Given that the highest earner has a total taxable income that’s less than £45,000 (£43,000 in Scotland), this could save you up to £230 a year.
Log all business mileage
Keeping track of your business miles can help build up a hefty deduction when it comes to filing your Self-Assessment if your employer’s rates are less than HMRC’s. Take a look at gov.uk’s approved mileage rates to see if you could claim tax relief on any loss. Tax software such as, our long-standing partner, GoSimpleTax, will help you record any expenses on the go.
When paying into a pension whether that be a private, company, stakeholder or personal pension you will receive tax relief, as long as HMRC has approved the pension scheme.
Tax relief is available on contributions of up to 100% of your annual earnings, for example if you earn £35,000 a year, you will be able to receive tax relief on up to £35,000 that is paid into your pension pot within a tax year. The maximum you will only be able to earn tax relief on in a year is £40,000 - this is called annual allowance.
However, if you earn over £150,000 per annum the annual allowance is reduced on a tapered basis. For every £2 you earn over £150,000 the annual allowance will be reduced by £1. This will reduce the allowance to £10,000 if you earn more than £230,000.
Bet you didn’t know you can claim back any tax relief from Gift Aid?
If you pay tax at the higher rate of 40% and make charitable donations under the gift aid scheme you may be due some extra tax relief.
When you make a donation, the charity reclaims basic rate tax relief gift aid (of 20%, although the government actually pay 28%) direct from the HMRC. However, if you pay tax at the higher rate of 40% then YOU can claim the 20% difference as a tax relief on your donations. For example:
You make a payment of £80.00 under the gift aid scheme. This is deemed to be a donation of (£100 less 20% tax). You can then claim £100 x 20% = £20 tax refund. Don’t forget if you sponsor friend and family for a charity run or bike ride this may qualify for the extra tax relief.
Limited company owners can divide what they extract from their businesses into wages and dividend payments, both of which have their own tax-free allowances. Your total take-home pay can be increased by making use of both allowances.
As a basic taxpayer you pay 7.5% on dividends, or as a higher rate taxpayer 32.5% – this is a substantial saving on the 20% and 40% respective rates of income tax.
The dividend tax free allowance was £5,000 in 2017-18, and is now £2,000 in 2018-19.
Get organised - use tax software
All our tips count on you being organized, knowing your what you’re bringing in, and what expenses you may be entitled to. At Listentotaxman we’ve partnered with GoSimpleTax which shows you this in real time by collecting information you input throughout the financial year. It automates your tax obligations and will find any saving you can make. They’ve made it easy for Listentotaxman readers by offering a 14-day free trial period. So why not find out what savings GoSimpleTax can make for you.