With the cost of living crisis With UK households feeling the effects of record inflation, rising interest rates and fuel costs, many are looking for new ways to save money.
One way to do this is to find ways to save on your tax bill. There are many ways to reduce your tax bill legally, whether you are employed or self-employed, owner, investor or retiree.
Here are the top 10 tips from consumer group Which? that can increase your bottom line with minimal effort.
1. Check your tax code
Consumers who pay taxes through Pay As You Earn (PAYE) should verify that they have the correct tax code, to ensure that they are not paying more taxes than necessary.
Those with the incorrect code may be entitled to pay less tax in future months or receive a refund from HMRC for previous overpayments.
Someone can end up with the wrong tax code or an emergency tax code if they started a new job and their new employer doesn’t have a P45, if they recently had a salary change or s started or stopped taxable state benefits. For example, basic rate taxpayers who receive an emergency tax code that excludes their personal allowance could pay an additional £2,514 in the 2022-23 tax year.
Consumers should check their tax code annually, or after changing jobs, to make sure it matches their situation.
2. Check if you are entitled to benefits
Low-income workers with less than £16,000 collectively in savings and investments may be eligible for Universal Credit, which is to replace other legacy benefits like tax credits by 2024. Payments will vary depending on the status of people. Those with children, for example, could receive up to 85% of their childcare costs, up to £646 a month for one child or £1,108 for two children.
Every year more than £15billion goes unclaimed from the Treasury from households eligible for benefits, meaning more than seven million UK households could miss out on benefits and other support such as tax cuts municipal.
3. Contribute to a pension plan
Employees can contribute to their employer’s pension plan from their gross salary, before any tax is deducted.
The government then supplements the pension contribution with tax relief, providing a free bonus for saving for retirement.
The effect of the tax relief is that a contribution of £100 which would have been taxed at 20%, and therefore a net worth of £80, is paid into your pension fund without any deduction – so it is worth the full £100.
4. Make sure you meet the tax return deadline to avoid a £100 fine
About 12 million people must submit a self-assessment tax return each year.
Missing the claim deadline is a costly mistake that’s easy to avoid. Those submitting an online submission have until January 31, 2023 to send in their 2021-2022 return, but for paper submissions the deadline is earlier, October 31, 2022.
Failure to meet the deadline results in an automatic £100 penalty, even for those who owe no tax.
5. Recover overpaid taxes
Non-taxpayers and those whose income unexpectedly dropped during the year might have been taxed more than they should have been, as HMRC assumes your personal allowance is used equally each month . To collect, complete HMRC’s R40 form or call them.
6. Apply for tax-free childcare
Under the tax-free childcare scheme, parents can claim 25% of their childcare costs up to £500 every three months.
There are certain eligibility criteria, including having a child under 11 and earning less than £100,000.
To get started, parents need to create an online account, which can be used to manage payments to their childcare provider. For every £8 you deposit, the government will pay £2, up to the value of £500 every three months, or £1,000 if a child is disabled.
7. Maximize your personal savings allowance
In 2022-23, savers can earn £1,000 of interest on savings tax-free if they are a basic rate taxpayer. Higher rate taxpayers enjoy a £500 tax exemption.
This means that they only pay tax on savings income that exceeds this threshold. This will no longer be deducted automatically by the savings organization. If tax is due, you will need to pay it through self-assessment or have it deducted through PAYE. Keep in mind that you will not have a savings allowance as a taxpayer at the additional rate (45%).
8. Use start rate to save
If your income from a job or pension is less than £12,570 in 2022-23, but you earn income from interest on savings, you may also qualify for the Start-Up Savings Allowance . Any interest you earn up to £5,000 is tax free.
This will be in addition to your personal savings allowance, meaning you could earn up to £18,570 before paying tax.
9. Benefit from lesser-known allowances
Consumers can keep more of their income by claiming any tax allowances to which they may be entitled.
The wedding tax abatement and the Rent-a-Room program can save significant amounts of money, but relatively few people are aware of it. For example, those who rent a room in their home can take advantage of the Rent-a-Room scheme, which means they can earn up to £7,500 tax-free.
Marriage Allowance benefits couples where one partner earns less than Personal Allowance and the other is a basic rate taxpayer.
Married or PACS couples can transfer a personal allowance of 10% from the partner who earns the least to the one who earns the most. In 2022-23, £1,260 can be transferred, saving you up to £250.
ten. Benefit from a reduction on your housing tax if you have low income
People with low incomes can benefit from a reduction in council tax of up to 100%. Each local authority has different criteria for determining who is eligible for council tax reduction and the extent of the reduction depends on income, savings and whether or not the applicant lives alone.
Those who are not eligible for a discount themselves, but share a property with a second adult who does (and who is not their spouse or civil partner), may be able to apply for a second adult discount .