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Personal taxes: How can I cut my tax bill?
Tax is one of the biggest expenses we all have to pay every year whether it is taken straight from our paycheque like income tax and national insurance or it affects us our purchases through VAT, fuel duty or car tax.
As a result, any way that we can legally save a little bit on a yearly tax bill is welcome for many households whether it is a government scheme, a rebalancing of the tax thresholds or a way to claim back. We are not tax advisers and we suggest you speak to one before looking into any of these areas but here are some things you could look into to ensure you are saving money on your tax bill.
Tax-free personal allowance and personal savings allowance
After a recent rise, the tax-free personal allowance rose to £11,500 for everyone across the country. This mean that you can earn £11,500 a year before being taxed on your salary. Anything you earn over this will be taxed at 20% basic rate up to £45,000, the higher rate of 40% up to £150,000 or at the additional rate of 45% for those earning over £150,000 a year.
The personal savings allowance is available for all savers across the UK and it allows you to make the most out of the money you have in savings. The first £1000 you earn in interest on your savings is tax-free if you are a basic rate taxpayer and for higher rate taxpayers, the threshold is £500. Any interest over this amount is taxable via self-assessment or PAYE as an adjustment to your tax code.
For those who have shares in a company, the first £5000 you receive in share dividends a year is tax free since April 2016. If the shares you earn in a year is below £5000, you don’t need to declare it to the relevant authorities however if you receive over £5000, basic rate taxpayers are liable to pay 7.5% tax while higher rate taxpayers are liable for 32.5% tax.
This can make investing in a company a much more attractive prospect especially if you would like to make a profit out of it but the high rate of tax can be a worry for some when it comes to investing despite the tax-free allowance. And of course, there are higher risks associated with investing in shares which accompany the potential for higher returns.
Unions, uniforms and mileage
Are you part of a union? Some unions are on HMRC’s approved body and their fees can be deducted from your salary before tax which can save you money overall. Unions such as The National Union of Teachers and Institute of Charity Fundraising Managers are included on the list.
For many occupations where you wear a uniform for work, you may be able to claim back the money you spend on your uniform. HMRC has flat-rate deductions, between £80 and £140 a year, for many employees required to wear a uniform.
If you drive a company car or van and you are paid less than 45p a mile for the first 10,000 miles travelled, you can claim the difference. For any mileage in excess of 10,000 miles, you can claim 25p per mile.
The marriage tax allowance is designed for couples where one person is a low earner earning below £11,500 a year. They will be able to transfer £1,100 of their allowance to their tax paying partner who can then save around £220 a year. This only applies if the higher earning partner is a basic rate taxpayer earning no more than £43,000 a year.
Applicants can backdate their claim for the previous tax year meaning that altogether £432 could be claimed in the first claim. To find out whether you would be eligible for the marriage tax allowance, visit the GOV.UK website.
High rate taxpayers who have gift-aided charitable donations during the year can claim back the higher rate of tax they have paid. So if you donate £100 to a charity of your choice, the total value of the donation including gift aid was £125. You can then claim £25 back on this if you pay tax at the higher rate of 40%.
Check your tax code!
If you are taxed by PAYE then you will have a tax code which takes into account all allowances and deductions needed to calculate your tax bill. HMRC uses assumptions to calculate your tax bill so you will need to inform them if things are incorrect and get this changed so that you are not paying too much or too little tax per month.
If you have any issues or questions regarding the tax you pay per year, get in touch with a tax adviser as soon as possible.