How 11 Ways To Save On Tax

Whether you are self-employed, a landlord, or an employee, tax is inevitable. However, there are many ways to legally reduce your tax liability and ensure you are taking home as much as you can. From tax reliefs to Government schemes, here are 11 ways to save on tax:

Individual Tax Savings 

Check your tax code  

This is something that everyone can and should be doing. Your tax code indicates your tax free allowances, together with any benefits and expenses you may have. Whilst you often receive correspondence in the post when the code is changed, it is always worth checking that you are on the correct code. Codes may change when your salary alters or if you change your job. If you are on the wrong code, you could be entitled to a tax rebate.

Contribute to Your Pensions 

Paying into a pension scheme is another way to save on tax. Pension contributions can be made from your gross pay which is the amount before any tax is taken away. The government will then top this up with tax relief which gives you a bonus for saving for retirement at no additional cost. There are pension tax relief calculators available online if you want to see how much you can save for your future.

Meet the tax return deadline  

Many people leave their self-assessment tax return until the last minute but this is not the way to go if you want to save money. If you are late filing your tax return there is an automatic £100 fine. Avoid any chance of a late fine by submitting it way in advance of the deadline which is 31^st January online. Remember that paper versions need to be submitted earlier and this deadline is 31^st October 2023.

Reclaim any taxes you have overpaid  

There may be a time when your income suddenly drops. For example, if you cease employment/trading part way through the tax year. However, HMRC will assume your personal allowance usage is still the same and therefore will still be taxing you the same amount. If this happens, you should fill out a R40 form or call HMRC to discuss a refund.

Charitable Donations  

Charity donations from individuals and businesses can be made tax-free. The individual or the charity itself can claim the tax back through Gift Aid. Those paying the high or additional tax rate can also claim back the difference to the basic rate on Gift Aid donations. It is important to keep a record of charitable donations; giving details of where you made the donation and how much it was for. You will need this information when you claim on your self-assessment tax return.

Self-Employed Tax Savings  

Make the most of tax-deductible expenses 

There are certain expenses that you can make as a company/sole trader that are tax deductible from your income. These costs include use of home as office, phone bills, mileage/fuel, utility bills including light, heat and water rates. You could also be eligible to claim the costs of running a vehicle if it is used for business.

Annual Losses 

If you make a loss in a tax year, you can allocate this against your other income thus reducing your total overall income and subsequently your tax liability. You can also carry it forward and offset it against the profits you make from a successful year.

Investor Tax Savings 

Make the most of the dividend & Capital Gains Tax allowance.

You can earn up to £2,000 dividend income before any tax becomes due as this is covered by the nil rate dividend allowance.

Capital Gains refer to the profit made from selling particular investments and assets such as residential properties, commercial properties, land, art, or shares. In the 2022/23 tax year, capital gains of up to £12,300 are currently tax-free. Married couples who co-own assets can combine their allowances and can receive up to £24,600 tax-free. Unfortunately, this cannot be rolled over, so you only have the allowance during the tax year before it is reset.

Transferring assets  

You are able to transfer assets to a spouse or civil partner at a no gain, no loss disposal thus meaning no capital gains tax will arise on the assets sold. This is beneficial if your spouse has less income as the tax rates may be lower which consequently means that they will pay less income tax/capital gains tax.

Landlord Tax Savings  

Landlord’s expenses  

As a landlord, you are able to deduct certain expenses from your rental income profits. These costs include letting agent fees, accountancy costs, insurance, gardening, cleaning and repairs to the property.

Landlords can also claim for the costs of replacing certain furnishings, such as beds, carpets and appliances, assuming they are a like for like replacement.

Buy-to-let mortgages  

Mortgage interest is no longer tax deductible from your rental income, however, there is now relief for finance costs available which allows landlords to claim tax relief at 20% on their mortgage interest. This relief is deducted from your total income tax liability but can’t be used to create a tax refund.

You are also eligible to carry forward any unutilised finances costs to a future tax year.

You will note it is the mortgage interest element only, any capital repayments are disallowable.

These are just some of the ways to save on tax. As the article suggests you can be an individual employee working for a company, a landlord, an employer, or self-employed and still find ways to effectively reduce your tax bill. Whilst some of the tips mentioned do involve some work and forward planning, others are quick and simple things you should be able to start putting into action now. All businesses and individuals are different, therefore if you need specific advice on your business’ tax, then please get in touch with our Wright Vigar tax team.