What Tax Deductions and Credits Am I Eligible For?

Whilst most of us have heard the phrase 'tax deductions', many people often wonder what they are, and if they can benefit from them. This article will aim to address these questions and take a look at how you could save money in your next self-assessment.

Arjun Kumar
Arjun Kumar
Sep 27, 2023

What Tax Deductions and Credits Am I Eligible For?

Tax season can be a confusing and stressful time for many, with complex forms, tight deadlines and the looming question hanging over every taxpayer’s head ‘What tax deductions and credits am I eligible for?’. Whether you’re filing your first return or a seasoned veteran of the tax world, navigating the maze of tax deductions and credits can be both challenging and rewarding.

This article will act as a guide in helping you break down the intricacies of the topic, from understanding the differences between deductions and credits, to determining your eligibility. Let’s take a closer look at how you can save money on your next tax return.

Understanding Tax Deductions and Tax Credits

Before we explore some common examples of tax deductions and credits, it’s important that we understand the difference between the two and how they impact our final tax bill. Tax deductions are factors that lower your taxable income and, in turn, contribute to lowering your final tax liability. Whilst tax credits can also lower your tax liability, these credits are direct reductions in your tax bill, that are subtracted from the total amount that you owe.

Common Tax Deductions

Now that we understand the difference between tax deductions and credits, let’s take a closer look at some of the most common deductions that can help you reduce your tax bill.

Personal Allowance: Individuals in the UK benefit from a tax-free allowance, known as a personal allowance. This figure currently stands at £12,750, meaning for the first £12,750 can be deducted from your taxable income. This begins to taper when you earn over £100k, every £1 you earn you lose 50p of your personal allowance. So at £125,140 you will have no personal allowance left.

Marriage Allowance: You may be qualified for the marriage allowance if you are married or in a civil partnership in the UK. This allows you to transfer a portion of your personal allowance to your partner, potentially reducing their tax liability. Both of you must be earning within the 20% basic rate band, and one of you earning under the personal allowance to be able to make the transfer.

Employment Expenses: If you are not already reimbursed by an employer, you may be able to claim tax relief on any expenses related to your job. This can include costs relating to business mileage, tools or uniforms, etc.

Self-Employment / Landlord Expenses: If you’re running your own business or trade, you will be able to claim back on spend you incur wholly and exclusively for your business.

Pension Contributions: You often qualify for tax reduction if you make contributions to a pension plan, whether they are made privately or via your employer. Depending on your tax bracket, the government may contribute an additional 20% or more to your pension savings.

Losses from previous years: A loss within the same trade e.g. Self Employment can be used against future year profits to reduce your taxable income.

Understanding and taking full advantage of these tax deductions is essential in minimising your tax bill and ensuring you’re making the most out of the tax benefits that are available in the UK. If you’re ever unsure of which deductions you can apply, the Taxd online self-assessment tool auto-suggests any relevant tax deductions that will be applicable to you. This ensures that you file a tax-efficient self-assessment form and minimises your tax liability, saving you money at the end of the tax year.

Common Tax Credits

In addition to tax deductions, HMRC offers various tax credits that are directly applied to your tax bill, reducing the amount of money that you owe. Let’s explore two of the most common tax credits that you may be eligible for in the United Kingdom.

Mortgage Interest Tax Relief: Since April 2020, mortgage expenses are no longer deductible from rental income. Instead, there's a 20% tax credit for mortgage interest payments, which is less favorable than the previous 40% relief for higher-rate taxpayers.

Venture Capital Scheme Relief: In the UK, venture capital schemes like EIS and SEIS offer tax incentives to investors, including income tax relief (up to 30% for EIS and 50% for SEIS), capital gains tax relief, and inheritance tax relief. These schemes encourage investment in early-stage, high-risk companies.

As a self-employed individual, navigating the tax landscape can be complex and difficult to understand, but utilising these common tax credits can make a significant impact on your finances. It’s worth noting that eligibility criteria and regulations are constantly changing so it may be worth consulting with a tax professional, such as Taxd to help identify which tax credits you can apply for.

Still Unsure? We’ve Got You Covered

The Taxd online self-assessment tool, can help streamline the complex task of understanding your eligible deductions and credits, serving as an indispensable aid for individuals and small business owners. Here's how we help:

  • In a few clicks, our easy-to-use tool automatically suggests which tax deductions and credits could be eligible for, ensuring you pay as little tax as possible.

  • Taxd is constantly updated with any changes in tax laws, allowing you stay ahead of the curve with any new regulation and ensuring full compliance with the UK laws.

  • Real human support. Our qualified accountants are on standby throughout the process, ready to help with any questions you may have.

What are you waiting for? Head over to our website today and take a look at how we’ve helped hundreds of people identify relevant tax deductions and save money on their tax bill.

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