Tax, self-assessments, payments on account – urgh. Safe to say that tax is far from anyone’s favourite subject. Yet every year, on the 31st January, there it is – the self-assessment deadline date, and it simply can’t be avoided.
If this is a day that fills you with dread and empties your bank account, then the following tips may just help lighten the burden that is your income tax bill. That said, we want to be clear – there’s no dodgy tactics here, and certainly nothing that could land you in hot water with the tax man.
- Make use of the full range of tax-allowances
You may not be aware of just how many forms of tax relief and allowances there are, which include: savings income, dividend income, capital gains and – the main one – basic income tax allowance.
When added together, these allowances could allow you to earn more than £28,000 per year without having to pay a pound in tax.
- Consider using an accountant – they usually pay for themselves
You may think that you’re saving a pretty penny by not paying an accountant to complete your tax returns, but you’re probably missing a trick. Accountants can advise you on the full range of ways you can make tax savings.
It’s all well and good reading generic guides such as this, but advice that’s tailored to your circumstances can be worth its weight in gold.
You should also bear in mind that any fees paid to your accountant are tax deductible – which will also reduce you tax bill.
- Make use of your ISA allowance
Individual Savings Accounts (ISAs) now allow you to save £20,000 free from having to pay tax. To complement this savings account, there is now a ‘Lifetime ISA’, which allows savers to benefit from a 25% annual bonus on up to £4,000. A further tax-friendly addition to the ISA range includes the new ‘Innovative Finance ISA’.
- Get a lodger
This little-known tip is also rather a lucrative one. If you can rent out a room to a lodger, you could earn an additional £7,500 completely tax free.
This so-called ‘rent a room scheme’ was given a boost in April of 2016, before which time the level stood at £4,250.
If you do use this method as a tax saving, just bear in mind that it must apply to a room within your home (rather than being used in a house that has been remodelled into separate units).
- Make use of pension tax breaks
Although the savings that can be bagged have been slashed in recent years, pension tax breaks are still among the most efficient forms of tax relief. In short, contributions of up to £2,880 a year becomes £3,600.
- Earn more than £43,000? Cut your tax bill by giving to good causes
Charitable giving can help those who are in the higher-rate tax threshold by splitting the tax relief between the charity and the tax payer.
Charities, as well as community amateur sports clubs, can use ‘gift aid’, which places a claim for an additional 25p for every £1 given by taxpayers. For higher-rate taxpayers, they can then claim their own £0.25 per £1 on their self-assessment.
- Sacrifice your salary
For a lucky few workers, their employers provide the option of swapping a portion of taxable salary for non-taxable perks, which can contribute towards your pension, childcare and super-low emission vehicles.
- Transfer your assets to your spouse
If your spouse – that is your husband, wife or civil partner – is either a non-taxpayer, or pays basic-rate tax, you may want to consider shifting some income producing assets into their name (such as savings, equity or property).
- If you run your own business, make sure you’re claiming for all allowable expenses
Allowable expenses are complex, to say the least. With a long list of rules as to what is and isn’t allowed, it’s easy to not claim for all that you’re entitled to; or, on the flip side, to claim for something that isn’t allowable.
The Gov.uk website sets out clear lists of allowable expenses, along with limitations.
If you’re unsure about anything, the HMRC hotline is always staffed with helpful customer service representatives. You can contact them on: 0300 200 3300.
However, we can’t stress enough that this is an area in which an accountant could really help, and if you take one tip from these nine to put into action today, make it this one: get an accountant!