Ways To Avoid Paying Too Much In Taxes
Paying taxes is a necessary aspect of life. However, most people would undoubtedly prefer not to give the government a piece of their income.
Fortunately, there are a few entirely legal ways to reduce the amount of taxes you pay yearly. These consist of credits, deductions, and sophisticated investment techniques. While some tax breaks are only available to freelancers or small business owners, others are open to all taxpayers.
So, without further ado, let’s look at how to pay fewer taxes under the current law, even if the tax code changes frequently.
6 pro-tips to lower your tax bills
Today, an average British household pays £1.1 million in taxes over their lifetime. So, Perrys Chartered Accountants offers its six best suggestions to ensure you aren’t overpaying taxes.
#1. Check your tax code
If you work full or part-time, you probably pay taxes using the pay-as-you-earn system (PAYE). This indicates that your income tax is withheld at the source and sent directly to HMRC. So, your payslip will display a tax code, which is just a few numbers and a letter, such as 1257L. This is your tax code. A few digits more can greatly affect the amount of tax you pay, and mistakes frequently occur. For example, you should change your tax code engine to guarantee you are paying less if you previously owned a corporate car with a fuel-guzzling engine but have since converted it to a model with an eco-friendly engine. Moreover, speak with your employer or contact HMRC directly if you have questions regarding your tax code.
#2. Claim authorized expenses
There are several costs that are permissible for self-employed people. Those can lower your tax liability. These charges should be deducted from your entire earnings so that you just pay tax on the remaining amount. These include office operating expenses, train travel, and website fees.
#3. Check whether you qualify for tax-free childcare
You might be eligible for tax-free daycare if you have kids. It applies to the expenses of the nursery, childcaring, or wraparound care. Additionally, with this program, the government will contribute 20% of your childcare expenses, up to a maximum of £2,000 per qualified child each year. So, tax-free childcare is just one of several childcare programs available. Besides, working parents can also qualify for tax credits and various levels of free childcare. To check which choice is best for your family, use the government’s childcare calculator.
#4. Contribute to a pension
The majority of UK taxpayers receive tax relief on the money they pay into pension funds. This means the government supplements your contributions to your retirement savings account. The top-up is 20% for basic rate taxpayers, meaning that HMRC will add £20 for every £80 you contribute to a pension fund. Moreover, saving for retirement can actually lower the annual tax burden for those making over £100,000 per year. So, it is also a type of tax relief. This is due to the fact that the personal allowance, which is presently set at £12,570 and is the tax-free yearly earnings allowance, gradually reduces by £1 for every £2 earned over £100,000. Also, the maximum amount of personal allowance is available to you if your yearly income is less than £100,000 thanks to pension contributions, which lower your taxable income.
Increased pension contributions can also have an impact on child benefits. Currently, if the parent with the higher income earns over £50,000 per year, the monthly child benefit payments are steadily reduced. Thus, by the time the income reaches £60,000, any claim disappears entirely. It might be possible to maintain your taxable income slightly below £50,000 by contributing extra to a pension fund. That guarantees that you receive the full amount of child benefits available to you. Meanwhile, it’ll also increase your pension savings for later years.
#5. Maximize your marriage or civil partnership
A husband, wife, or civil partner can transfer £1,260 of their personal allowance to the partner who earns more money thanks to the marital allowance tax break. However, you must not pay income tax or have an annual income below the Personal Allowance ($12,750) to qualify. Besides, before getting a marital allowance, your partner should earn between £12,751 and £50,270 before paying income tax at the basic rate.
2.4 million eligible couples are not claiming the marriage allowance. This can save them up to £252 in taxes annually. Moreover, the good news is that one can backdate the request for a marital allowance for up to four years.
#6. If you’re single, save!
The benefits of living alone are possible. Remember that the majority of local governments in England and Wales provide a 25% council tax rebate for single individuals. Even though it may be worth roughly £300 per year, many locals choose not to apply for the benefit. So, get in touch with your local council directly to learn more if you’re single.
