6 Ways to Reduce Your Tax Bill

Our top 6 tips to reduce your tax bill this year

1. Claim tax relief on pensions

If you’re a higher rate taxpayer (40% tax bracket), pension contributions can provide tax relief on your contribution amount. This means that your pension is topped up, ensuring you receive a steady income into retirement.

Reviewing your annual pension allowance is also important; if it's lower than the contributions you’ve made over time, you can make additional contributions to ensure your income is as high as possible by the time you retire. Furthermore, funds held inside a pension grow free from Inheritance Tax, Income Tax and Capital Gains Tax.

2. Make charitable donations

Providing charity donations can extend your basic rate band which will reduce the payable tax - benefitting both you and the charity. If you donate through Gift Aid, this will reduce your Income + Capital Gains Tax, just ensure you’re a UK taxpayer and pay at least the same amount of Income Tax as the value of your donations.

The Payroll Giving scheme allows you to make donations directly from your PAYE income before tax. Donating this way will immediately benefit you from tax relief at your personal income tax rate. If you’ve made any charitable donations within a tax year, just let us know and Taxd can do all the necessary math for you!

Please note that these benefits for payable tax doesn't apply to financial gifts of more than £5k per year (£11k for married couples).

3. Use your Personal Allowances across income, savings, dividends and Capital Gains Tax

Every person has £12,570 Personal Allowance which they can receive free of tax each year. However, there are ways to earn tax-free income by being savvy with your money.

Savings

The Personal Savings Allowance (PSA) lets most people earn up to £1,000 from their savings without paying tax. This includes interest earned from bank accounts, savings accounts, corporate bonds, credit union accounts and more, so it’s a great idea to make the most of this if you have the means to do so.

Dividends

You’ll likely receive dividend payments if you own shares in a company. The first £2000 of dividend income is tax-free, so you can benefit from this scheme if your gains fall below this figure.

Capital Gains Tax

The Capital Gains Tax (CGT) allowance in 2022-23 is £12,300 so if your earnings fall below this, you can earn tax-free income. For example, if you make a gain after selling a property and it’s more than the £12,300 allowance, you’ll pay 18% CGT as a basic-rate taxpayer, or 28% as a higher-rate tax payer.

Trading Allowance

If you earn a little money on the side through self-employment or freelance work, you can earn up to £1,000 tax-free and you won’t have to report this to HMRC.

4. Make the most out of tax-efficient investments

ISAs are a great tax-efficient investment because they’re tax-free! Once you've set up an ISA, it’s then a good idea to look at pensions as well as venture capital schemes to reduce your tax bill.

Most people stick to cash for their ISA, but by investing in stocks and shares, you can be protected against dividend tax and Capital Gains Tax.

5. Keep track of your expenses + travel

If you’re self-employed or a landlord, it’s crucial to keep on top of your expenses throughout the tax year to claim these back when filing your Self Assessment.

You can claim for the costs that help you carry out your job efficiently. This can include a percentage of your:

• Household bills
• Travel costs
• Phone bills
• Uniform
• Stationary
• Equipment

Every little certainly helps and claiming for these can save you hundreds (or even thousands) of pounds a year. Check out our article with more information on which tax-allowable expenses you can add to your Self Assessment.

6. Leverage losses from previous years

If your self-employment business has made a loss in previous years, you can use these against future profits and gains. This reduces the tax due on this income and often generates a repayment of tax.

You can also deduct unused losses from previous years if your total taxable gain is above the tax-free allowance. However, if this reduces your gain to fall below the tax-free allowance, you can carry forward the remaining losses to a future tax year.

This process works across self employment, rental income and capital gains; we always recommend reporting losses so that you can use them against a future gain.

Claiming your tax relief

Claiming with a tax return

We’re here to help you file your tax return as quickly and efficiently as possible. Through our Self Assessment form, we cover all of the above and give you the opportunity to record appropriate expenses, charitable donations, pensions and more to make sure you’re not paying more tax than you need to.

Claiming without a tax return

If you’re employed and your taxes are taken care of through PAYE, you can still have the opportunity to claim tax-relief with HMRC. You may be able to get a tax refund if you believe you’ve paid too much tax.

Want further help? Why not get started on our easy-to-use self-assessment software at Taxd which will automatically point out if you can save on your tax bill in any relevant methods.