Ways to help you reduce your personal tax bill

21st February 2019

You don’t plan for your personal tax bills to be higher than you anticipated but, unfortunately, and for a variety of reasons, that’s how it turns out sometimes – and it can prove costly. Avoiding the pitfalls is easier than you think, and here we’ll show you how you can reduce your personal tax bill so you won’t have to worry about it happening again.

There are some simple reasons why personal tax bills end up higher than people expected. Among the some of the common ones are mismanagement of finances, such as paying yourself incorrectly from a limited company, or a failure to understand family earnings and claiming too much child benefit when one partner earns more than £50,000.

Another trap that people stumble into is simply not realising that company cars and benefits are not that cost-effective.

Quick steps to saving tax

So, first things first, let’s have a look at some quick wins when it comes to saving tax (we go in to detail about each bullet point below):

  • Check your tax codes – are you on the right code?
  • Use your ISA allowances
  • Make sure your tax return is correct
  • Use marriage allowance transfer
  • Add spouses to your business
  • Use entrepreneur relief

Check your tax codes: It sounds obvious – and it is – but too many people just forget to check, meaning they haven’t realised their tax code has changed. Your tax code will normally start with a number and end with a letter, which are used to tell your employer or pension provider how much tax-free income you get in that tax year.

Use your ISA allowances: You get an ISA allowance each year that sets the maximum you can save tax-free wrapper from April to April. Although the amount you can save is limited to £20,000, you can choose whether you want to split this between different ISAs.

Make sure your tax return is correct: The quickest, easiest and most pain-free solution is to use an accountant. We are the experts. And our door is always open…

Marriage Allowance transfer: This allows you transfer £1,190 of your Personal Allowance to your husband, wife or civil partner, which can reduce your tax by up to £238 every tax year. However, to benefit as a couple, you must earn less than your partner and have an income of £11,850 or less. Your partner’s income must be between £11,851 and £46,350 to be eligible.

Adding spouses to your business: You can employ your spouse in your business and take advantage of the lower tax rates and personal allowances that may be available.

Entrepreneurs’ relief: You may be able to pay less Capital Gains Tax if you sold all or part of your business. Entrepreneurs’ Relief means you will pay tax at 10% on all gains on qualifying assets.

Above are quick steps for saving tax, now let’s look at some other areas and opportunities for reducing the bill that you receive.

Other ways to reduce your personal tax bill

Now let’s look at other opportunities for saving on your tax bill.

Pay less tax if you’re self-employed

Are you self-employed? If so, make sure you are aware of tax deductible expenses. If you are self-employed, that means your business will have various running costs, and you will be able to deduct some of those costs as long as they’re allowable expenses. Tax-deductible expenses include:

  • Travel costs – such as fuel, parking or bus/train fares
  • Subsistence allowance – Meals and other food costs
  • Home allowance – If you work from home, you may be entitled to claim the working from home allowance. It’s worth finding out if you qualify
  • Laundry allowance – if you wear a uniform or protective clothing, it’s going to need to be cleaned and maintained
  • Office expenses – such as stationery, printing costs or phone bills

Save tax if you’re retired or over 65

When you reach 65, or if you were in a position to retire from work at an earlier age, there are ways and means to reducing your tax through allowances that are available.

Tax when you get a pension: With money from a pension, you pay tax on any income above your tax-free personal allowance.  The amount of income tax you pay will depend on which tax rate applies to you.

ISAs: There are many different ISAs available for over-65s. Find out which is the best for you.

National Insurance contributions: Find out what your contributions are when you reach the state pension age, whether you’re employed or self-employed.

Tax relief: You will get tax relief on your pension contributions because the government wants you to save for your retirement. Tax relief will reduce your tax bill or increase your pension fund.

Inheritance Tax: It will be better in the long run to plan ahead, as it could cost your loved ones hundreds of thousands of pounds in the event of your death. However, you can legally avoid huge swathes of it, or even pay nothing at all.

Reclaiming tax on savings: If you have paid more tax on your savings interest than you should have, you will be able to claim it back.

Tax on savings interest: Some people will be able to earn income from their savings without paying tax, which is called a personal savings allowance.

Income tax rates and personal allowances: Age-related allowances can reduce how much tax you pay. Some allowances are income amounts which aren’t taxed, while other allowances reduce your tax bill.

Independent advice: Talk to someone. You can ask an independent financial advisor to deal with HMRC, or ask them to give you specialist advice on pensions.

How to make the most of employee benefits

Are you making the most out of employee benefits? As an employee, you pay tax on company benefits such as accommodation, loans and cars, while your employer takes the tax you owe from your wages through PAYE.

Tax on company cars: You will pay tax if you use a company car privately, including for commuting. The tax you pay is related to the value of the company car to you, which could depend on how much it would cost to buy or the type of fuel it uses. Also be aware that if your employer pays for fuel you use on personal journeys, you will pay tax on this separately.

Tax-free company benefits: These company benefits are tax free:

  • Staff canteen meals
  • Water and hot drinks at work
  • Staff parking
  • A mobile phone
  • Childcare support, including childcare vouchers

Tax codes, allowances and deadlines

There’s a responsibility on your shoulders to make sure HMRC have got the certain information correct about you, otherwise that could mean your tax bill being too high.

As mentioned earlier, you must check that your tax code is correct and make sure HMRC know. It’s your responsibility to pay the correct tax.

Make sure you meet every deadline. If you don’t, HMRC will come down hard on you, and you will be penalised.

Find out which allowances are available to you – there are probably more than you think – and make sure you use them. That’s what they’re there for.

Also be aware of scenarios where, for example, if you earn more than £100,000, you have to complete a tax return and tell HMRC because they won’t tell you.

Other personal tax FAQs? Here’s some answers

Seeing as this blog is about reducing your tax bill, we thought it was fitting to answer other FAQs about personal tax.

Q1. Can your tax bill be paid in instalments? Yes. A Direct Debit plan can be set up to pay instalments, but you must make sure you inform HMRC as soon as possible should your circumstances change, and that you are in a position to pay your tax bill quicker. Be aware there will be interest due on any late payments. In essence, just make sure you keep your payments up to date.

Q2. Can a tax bill be paid with credit card? No, you cannot pay with a credit card. However, you can with your debit card.

Q3. What happens if I can’t pay my tax bill? If you can’t pay your tax bill in full by the deadline, you may be able to pay in instalments by Direct Debit. In some situations you may be given more time. You still have to file your tax return and you may still get a fine.

Q4. Where can I pay my tax bill? Payment options for paying your tax bill are as follows:

  • Debit card paymentsonline
  • Bank details for online or telephone banking, CHAPS or Bacs
  • Payat your bank or building society
  • Set up a Direct Debit
  • Budget paymentplans
  • Cheques through the post
  • Payingyour self-assessment bill through your tax code
  • Checking your paymenthas been received

Q5. How do I pay my tax bill without a payslip? You are encouraged by HMRC to pay online but, if you are paying by post and you don’t have a payslip, you can complete and print off a self-assessment payment slip instead, and then send that with your cheque to HMRC. You can set up a personal tax account here. Also, make sure that your personal tax account isn’t riddled with mistakes.

Let us help you

If this all sounds a bit too complicated, or too time-consuming, but you still really don’t want to be hit with a tax bill that’s higher than it should be, then get in touch with us.

If you would like to discuss your tax bill, or would like some one-on-one advice in more detail, please fill in your details below and one of the team will be in touch. Alternatively, give us a call on 0333 200 0714.

Would you like to take a fresh approach to your accounts?

MEMBERS OF THE ASSOCIATION OF
CHARTERED CERTIFIED ACCOUNTANTS