While the average British family now pays £ 1.1 million in taxes over their lifetime, Perrys Chartered Accountants provide her six top tips to make sure you’re not overpaying.
1. Check your tax code
If you are a full or part-time employee, you may be paying taxes through PAYE. This means your income tax is deducted at source and goes directly to HMRC. Your tax code is basically a number and a letter, for example 1257L, and it is shown on your payslip. These few numbers can make a big difference in the amount of tax you pay, and it’s not uncommon for errors to persist. For example, if you once owned a company car with a fuel-burning engine, you switched to an eco-friendly model, you should adjust your tax code to make sure you’re paying less. If in doubt about your tax code, talk to your employer or call HMRC directly.
2. Claim authorized costs
For self-employed workers, there are many approved costs that can help reduce your tax bill. These costs include the cost of running the office, train fares and website fees, and your overall profit should be deducted, meaning you pay tax on the amount remaining after these costs.
3. Check if you are eligible for tax-free childcare
If you have children and pay for nursery, childminding, or wrapping care, you may be eligible for tax-free childcare. Under this scheme, the government will pay 20% of your child care costs up to a maximum of £ 2,000 per year for eligible children. Tax-free child care is one of several child care schemes available – working parents can also qualify for a variety of free child care and tax credits. Use the government’s child care calculator to find out which option is best for your family.
4. Pay the pension
Most UK taxpayers receive tax relief on payments made to the pension fund, which means the government pays into your retirement savings. For basic rate taxpayers, the top-up is 20% – HMRC will add £ 20 for every £ 80 you contribute to the pension fund. As well as such tax relief, savings for retirement can actually reduce the annual tax bill for those who earn more than £ 100,000 a year. This is because personal allowance (tax-free annual income allowance is currently set at £ 12,570) is gradually reduced by £ 1 for every 2 earned over £ 100,000. Pension contributions reduce your taxable income, so if these contributions keep your annual income below £ 100,000, you will benefit from the maximum level of personal allowance.
Paying more in the pension container can also have an impact on the child’s well-being. Currently, monthly child benefit payments are gradually reduced if high-income parents receive more than £ 50,000 annually, and any entitlements disappear completely when income reaches £ 60,000. By making additional payments to the pension fund, you may be able to keep your taxable salary below £ 50,000, thus ensuring full childcare entitlement and increasing your pension savings for years to come.
5. Make the most of your marriage or civic partnership
Marriage allowance is a tax break that allows a husband, wife or citizen partner to transfer their personal allowance of ব্যক্তিগত 1,260 to a higher earning partner. To qualify, you must not pay income tax or your income must be below personal allowance (£ 12,750). Your partner must pay income tax at the basic rate, which means their income is between £ 12,751 and £ 50,270 before they receive the marriage allowance.
Marriage allowances can cost up to 2 252 in tax savings per year, yet about 2.4 million eligible couples are failing to claim benefits. However, the good news is that marriage allowance claims can be backdated for up to four years.
6. Save if you are unmarried!
Being alone can bring its benefits. Don’t forget that most local authorities in England and Wales offer a single person council tax deduction of 25%. It can cost around £ 300 a year, yet many residents fail to claim benefits. To find out more, contact your local council directly.