Everyone wants to do their part, paying fair tax. But unless money is no object, most people would rather not overpay. The overwhelming problem facing many taxpayers, however, is lack of insight and understanding about tax obligations.
Tax matters can grow complex, particularly for citizens without a background in accounting and money management. Professional help may be in order, if you’re tax circumstances warrant extra help, but there are also steps you can take to pay less tax. From meeting tax deadlines to claiming proper deductions, consider the following moves you can make to save on tax.
Confirm Your Tax Code
Your tax code reflects how much HMRC will take from your paycheck. If you’re on the wrong code, you may not be paying proper tax. It’s important to confirm you’re on the right code each year, and after every job change. Should you discover you’re on the wrong code, you may be eligible to pay less tax in coming months or claim a refund owed you for overpayment.
Make the Most of Your Personal Savings Allowance
For the 2019-20 tax period, basic rate taxpayers are eligible to earn as much as £1,000 tax free savings interest. Higher rate taxpayers also qualify for the allowance, but at a maximum threshold of £500. Since you only pay tax on interest exceeding the savings allowance, it makes financial sense to earn as much interest as possible, below the permitted threshold.
There is no savings allowance for additional rate taxpayers and tax is no longer automatically deducted by your bank. If tax is owed, it’s up to you to self-assess and pay whatever’s due.
Take tax Credits
You may be eligible to claim tax credits that reduce what you owe. Top tax credit types include child tax credits and working tax credits. You’re not eligible for additional types if you already claim Universal Credit.
Contribute to a Pension Scheme
UK investors who pay into a pension scheme can draw the contributions from their gross pay, before taxes. The government tops up the scheme with tax relief and you get a benefit, just for preparing for retirement. Each case is unique, so it pays to explore up-to-date pension rules, in order to make prudent pension planning moves.
Embrace the Marriage Allowance
A specific benefit is available, helping to reduce tax for UK couples in which one of the earners brings home less than the personal allowance. Under these circumstances, the unused portion of the personal allowance, unmet by one partner, may be transferred to the other, higher earning partner, in order to reduce overall tax liability for the pair.
Whether married or in a civil partnership, up to £1,250 may be transferred to ease the tax burden on the higher earner. In 2019-20, the move could save you as much as £250 on your tax. You’re only eligible for the marriage allowance if the higher earner is a 20 per cent taxpayer.
Claim an Overpayment Refund
When you run out of money with your payday ahead, several online UK lenders are prepared to extend short-term loans – even with a history of bad credit. Better yet, you may have a tax balance due you, as a result of past overpayment. If your income falls during the year or you feel overtaxed for some other reason, file a claim with HMRC – a refund may be coming your way.
Tax is a necessary, yet often unwelcomed expense – particularly if you feel you’re paying more than what’s required. Tax credits, special allowances, and other schemes can help lower your tax this year, but it’s up to you to maximise the relief.