Whether it’s because you want to save more money, or you just feel like you’re paying too much in tax, learning how to decrease personal tax is useful for anyone. It’s impossible to avoid paying taxes altogether but there are many ways which will help you reduce them quite dramatically.
Ask about tax credits
Certain individuals like those with children, the disabled, or those on minimum wage can qualify for tax credits. These come in two forms: working tax credits, from which you could get up to £1,960 a year; and child tax credits, which applies if you earn less than or equal to £16,105 annually.
Rent out a room
A spare room in your house can get you tax-free earnings. Any profit you make from renting out a room in your house, up to £7,500, will not be charged tax. However, keep in mind that this only applies to rooms in a house that you actually live in, and not for homes that are specifically for renting.
Maximise your Isas
Take advantage especially of the recently-increased Isa allowance, £20,000, and enjoy tax-free interest on any savings you put into it. Try to place your savings into your Isa and hit the £20,000 before anything else, as the allowance is renewed every year, and unused allowance from the previous year is not carried over to the following year.
Give to charities
Donations to charities are not taxed, and either you or the charity can claim back the tax. Those earning above £43,000 can use tax relief on charitable giving, but the benefit must be split between the individual taxpayer and the charity he or she donated to. To claim your tax relief, you can either adjust your tax code with HMRC or declare it on your tax return.
Participate in a pension scheme
Pensions remain the most effective way to cut taxes even today. It’s also one of the easiest, as it can be deducted directly from your salary before it gets taxed. You can contribute a maximum of £2,880 per year, and up to £3,600 if you have children. Additionally, pensions have an added benefit of helping you save for your retirement.
Take advantage of deductibles for self-employed individuals
There are numerous tax reliefs that self-employed individuals in the UK can enjoy. For example, expenses for accommodation, meals, electricity, water, rent, and even maintenance can be considered tax-exempt if used for business purposes. As well, if you drive a car, the cost of gas and maintenance can be claimed as long as the expenses were made for business trips. You can also choose your own accounting year-end, which ensures you pay taxes on time on your own chosen date.
Hire a personal accountant
There are instances when you should seek help and advice when it comes to personal tax. For example, if you have a large stock portfolio, or are a higher-rate taxpayer, you need to complete a self-assessment tax return—not doing so carries high penalties. If you find this tricky, or you don’t have the time, you can avail of the services of an accounting firm like www.gsmaccountants.co.uk.