If you are worried about reducing tax bills, particularly when our house bills are rising too, you are not alone. Whether you are a pensioner, self-employed or a landlord, you can cut back on taxes.
Employers deduct income tax from the source or the PAYE framework for employees. But for the self-employed, one pays taxes by submitting self-assessments. The tax returns one file is actually from the previous year. It implies new individuals working as self-employed will benefit from it only in the next fiscal year.
Most self-employed put this obligation at the last moment. It is amid maintaining household expenses and financing business requirements. The article reveals some ways to reduce tax bills as a self-employed individual.
7 Best Ways to cut back on tax payments
As per Guardian, “HMRC waived £100 fines on late self-assessment filing, individuals will now have to pay additional penalties of £10 per day basis.” HMRC can fine taxpayers up to 30% of the due taxes for careless inaccuracies in the tax amount payment.
If you are one of those putting off the payment until the last date, the blog lists some ways to reduce the taxable obligations:
1) Claim on travel
To benefit from tax-cutting, you need to sort out ways by which you can claim relief legally. Yes, you can claim tax relief on travel if:
- Your workplace is not permanent
- You work from home but need to travel for client meetings
If you travel 10000 miles, you can claim around £4000 (approx.) as tax relief.
- Claim to work from home tax relief
As per Guardian, “self-employed can claim £312 as an expense on the employment pages. It is for the individuals filing tax relief or the self-assessments.”
Self-employed can claim tax relief by the end of the tax year or during the year. You can reduce taxes and get real-time credits by claiming them during the year.
Employees working from home for a week can also claim £6/week on the utilities required to ensure trouble-free work. One can do so on electricity, internet or business phone calls.
Here is the breakout of the tax relief one can leverage according to tax contributions:
- If you pay a basic tax rate of 20%, your actual savings will be £1.20/ week or £62.40/ year.
- If you pay a higher tax rate of 40%, your savings will be £2.40/ week or £124.80/ year.
- If you pay a basic tax rate of 45%, your savings will be £2.70/ week or £140.4/ year.
Contact HMRC or file a self-assessment tax return to claim tax relief.
3) Claim tax relief on pension contribution
Pension relief you can claim depends on the tax relief arrangement you are on. “Net pay” schemes are primarily for the employer’s pensioners or regular workers. The employers deduct it from the salary.
However, the rules may differ on a personal pension plan. It is ideal for individuals working as self-employed. Within this, if you are a high taxpayer and pay- 20% additional tax relief on your pension. You can claim 40% tax relief. Additional taxpayers can claim up to 45% tax relief.
Everyone gets tax relief on earnings with group personal pensions, group-invested personal pensions, and stakeholder pensions. It stays 20% regardless of the income bracket they belong to.
However, you have to claim it timely or else you may miss out on the benefit. Authorities may fine you for not claiming it timely.
It is essential to file a self-assessment at the right moment. If you have not received clearance from clients, finance your needs with self-employed loans with no guarantor requirement service. You can get instant cash help for your tax filing requirements. You can complete the legalities and pay later.
4) Claim tax relief on donations or charity
Donating to a charity can be beneficial for you. Gift Aid system regulated by Financial Conduct Authority (FCA); you can claim up to 25p for every pound you give. You can benefit the most if you are a high taxpayer. The percentage you can claim as tax relief depends on the tax rates like:
- As a high tax- payer, (paying tax at 40%) can claim tax relief of up to 20%
- Additional taxpayers, (paying tax at 45%) can claim 25% as tax relief on their donations.
However, basic taxpayers may not benefit much from the relief.
5) Tax benefits for married couples
If you are married, you can benefit from this relationship in tax savings. Married Couple Allowance can help you reduce your tax bill every year. If one partner earns less than the personal allowance, they can transfer up to £1260 of that allowance to their other half. It is possible if the second person is a basic taxpayer.
For th years 2023-2024, you can cut it between £364 and £941/ year. The best part is- you can back claim for up to 4 years.
Moreover, if you own shares, you can split the dividends. By doing so, you can save up to 2000 tax-free dividend allowances. It implies you do not have to pay the tax.
However, if you have dividends of over £2000, you must pay 8.75% tax as a basic taxpayer and 33.75% as a high taxpayer. At the same time, you can avoid the dividend tax by keeping your savings stocks and shares ISA. It will also prevent you from income and capital gain tax.
6) Reclaim overpaid taxes
If your income falls unexpectedly during the year, you may find you pay more as tax than you need to. It may be possible that you had paid extra on your previous tax return. Do not worry. You can contact HMRC and claim overpayment relief on your next self-assessment.
If your claim is genuine, the authority may ask you to provide the mode of payment. You can receive the claim either through bank transfer, cash or put the money towards your next tax bill.
Alternatively, it is better to analyse the amount that you overpaid. Check whether you did it mistakenly. Whatever the issue, correct it by assessing it on the government portal.
It is the same place where you filed for one. By logging, you can request a repayment of the excess amount on tax payments.
7) Do not skip reclaiming other income streams
Check whether you can declare a tax claim on any additional income you receive. You can receive it in any form, like- selling some items online, having an online store, renting out places on Airbnb or any similar business. You may not be aware of the fact, but you can get around £1000 tax relief on income from trading and property income allowance.
Claiming the same may require some time. Within that time, if you need additional financial flexibility for your online shopping store, you can switch to unsecured personal loans for bad credit with instant decisions for your needs. You do not have to worry about low credit or pledging collateral. Finance your short-term needs without further ado.
Tax arrangements and savings work differently for unique taxpayers and incomes. Explore some legal ways to save tax on your revenue or income. Lowering the liabilities towards tax may help you invest the money in much-needed business operations and scale seamlessly.