We all want to pay a bit less tax when possible, but how do we go about it? Surely it’s too complicated to do so what’s the point?
Well, there are some simple ways you can save money on your tax bill for 2018/19. Listed below are some tips to help you put a little bit more money in your pocket.
Employees and Individuals
For employees under PAYE, there are limited ways to cut your tax bill but here are a few tips that might help:
- Make sure your tax code is right – for most people, the tax code for 2018/19 will be 1185L based on a tax free personal allowance of £11,850. If your code is a lower number than this, it could be wrong and you’ll be paying too much tax. HMRC are issuing incorrect codes more frequently nowadays. We have had clients issued with BR codes because HMRC have a record of two jobs for the taxpayer instead of one, and in one case we had someone who earns £300 per week issued with a tax code which assumes they will earn £177,000 for the year!
- Tax credits – based on your earnings (and those of your partner), check out if you can claim Child Tax Credits or Working Tax Credits. These payments are useful for thos are lower earnings to help with childcare and normal living costs.
- Use your savings allowance – everyone can earn up to £1,000 per year of interest on savings without being taxed (for basic rate taxpayers) so make sure both you and your spouse/partner split your savings up accordingly.
- Company cars – if your employer provides you with a company car, check if you can opt out of this scheme and instead get paid a cash equivalent or, even better, get paid tax free mileage at the relevant HMRC rates. Company cars are extremely taxing and it is better to purchase your car privately and get paid by your employer for employment use of your vehicle. Vans are more tax efficient than cars.
- Childcare vouchers are available to employees if employers operate a voucher scheme. This allows a deduction for your wages in return for childcare vouchers which can be used to pay childcare costs to approved providers. This saves employees 20% on childcare costs by reducing the tax they pay on their wages. In Northern Ireland, you need to join a childcare voucher scheme before October 2018 to be eligible to use childcare vouchers.
- Dividends – individual taxpayers can earn up to £2,000 in dividends in 2018/19 without paying tax. Again, make sure any such investments in shares/securities are split equally between you and your partner/spouse.
- Marriage allowance – married couples can transfer £1,190 of tax free allowances to their spouse. This works if one person is a lower earner and the other pays tax at the basic rate of 20%. The lower earner can transfer the allowance to their spouse and tax is saved accordingly.
Anyone running their own business can make use of a range of tax reliefs on certain expenditure, below are a few tips on how to shave your tax bill as a sole trader or partner in a business:
- Expenses – make sure you are claiming all possible business expenses, such as use of your vehicle and its running costs, your mobile phone, using your own home as an office. Talk to your accountant about what can be claimed for your circumstances.
- If your income has dropped from the last tax year, look at the possibility of reducing your payments on account. Again, this will be specific to your business circumstances so talk to your accountant first.
- Pension contributions can save money on your annual tax bill, but obviously you’ll need to have spare cash to make a contribution to a pension scheme to do this.
If you own certain investment assets such as rental property, stock/shares or savings, there are a few simple things you can do to stop the taxman getting his hands on your money:
- If you have income from property, there is a tax-free allowance of £1,000 to claim against your property income. Aim to split such earnings with your spouse/partner so that both parties can claim this allowance against their income. It’s important to get this right in advance so do take professional advice before many any claims on your tax return.
- Split your investment assets with your partner/spouse – this is particularly useful if you plan to sell assets which will give rise to a profit/gain. For example, selling a rental property at a profit will give rise to Capital Gains Tax. Everyone has a capital gains tax-free allowance of £11,700 for 2018/19 so if you jointly own such property then this means £23,400 of any gains will be tax free!
- Make use of your tax-free ISA allowances – individuals can invest up to £20,000 this tax year in cash or stock and shares ISA accounts, with any interest/dividends being tax free. Again, make sure you split your investments with your spouse/partner to make best use of your ISA allowances.
Make sure you get the proper advice before embarking on a tax saving mission, as everyone’s circumstances are different and not everything above may be best suited to you. Talk to the experts first!