There are many ways to reduce your tax bill in a legitimate manner, for people who are employed, retired, self-employed and others. However, it is important to do so legitimately, as HMRC may launch an investigation if fraud or tax avoidance is suspected.
Allowances and tax codes
Make sure that you claim all the tax allowances you are entitled to, including the personal allowance, Capital Gains allowance and Annual Investment Allowance. These can be claimed, and will give you more income tax free. Check that you have the correct tax code, especially if you have more than one source of income, claim allowances or have employee benefits such as those paying for fuel or a car. Check that each allowance or deduction is correct.
If you are self-employed, you can deduct eligible expenses from your gross profit so that you only pay tax on the net
profit. There are many types of expense that can be claimed if you are self-employed, although each one has to be incurred for your business. Stationery, computers, phone bills, and more can be claimed against your profit.
Complete your annual self-assessment tax return in a timely manner, so that you avoid the instant penalty charge of £100. If you fail to submit your tax return even after the instant charge, you will be issued with an even larger penalty.
If you have your own business and make a loss one year, it may be possible to carry forward that loss to the next year. They will be offset against the next year’s profits. When you are self-employed you will make payments on account each year in January and July. If you believe that your profits will be reduced in the next year, apply to have the payments on account lowered.
You can save money on your tax bill if you are an employee by maximising benefits provided by your employer. If you have to travel as part of your job role, ask whether your employer has pool cars you can use, so that you save money on fuel and the wear and tear of your own car.
Company vehicles are often viewed as an expensive option, but if you select a model with low emissions, you may save money. Cars with a reduced CO2 rating are now taxed at a much lower rate. It may also be possible to take the cash equivalent as part of your salary, which may work out to be more beneficial.
There are many ways to reduce your tax bill, but you may want to seek advice to ensure it is legitimate.
Want to learn more?
Subscribe to our newsletter to get accounting tips like this right to your inbox
About The Author
We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!