Let’s face it: there isn’t anyone in Britain that wants to pay taxes if they can help it! Yet, it’s something that gets levied by the government on most people that earn a living or have an income of some description.
Some people pay taxes more than others, and the general rule is that your tax liability increases as you earn more money each year. But what if there was a way to increase your earnings but minimise your tax liability simultaneously?
What might surprise you is that many entrepreneurs, business owners, and those with a dual income (employed and self-employed) aren’t taking advantage of legitimate methods to reduce their tax liabilities.
Take a look at the following seven examples to help you reduce your annual tax bills for yourself and your business:
1. Check Your Tax Code Is Correct
Every adult in the UK will have a tax code that gets used by employers to ensure they deduct the right amount of tax and National Insurance contributions.
Sadly, many Brits forget to check if they’re on the correct tax code, and some could end up paying too much tax each year.
The best way to confirm if you’ve got the correct tax code is by contacting HMRC. You can usually telephone them during standard office hours, or send them a secure message online via your Government Gateway account.
2. Claim Entitlement For Pension Contributions
Having a private pension means you can have a more comfortable income level when you reach retirement age. After all: the state pension isn’t enough to sustain a retired person financially, especially with the continual rise in the cost of living.
You likely have a private pension through your employer or one that you’ve set up through your business. In either case, check that you’re claiming your full entitlement for your pension contributions.
Employers can help you claim your tax relief (20%) at source, but not all employers do this automatically. Remember to check!
3. Hire An Accountant
Whether you’re a sole trader or the head of a limited company, it pays to use the services of accountants to manage your tax affairs. You may already have some knowledge of preparing tax returns and record-keeping.
But, accountants have intimate knowledge of saving money for their clients and helping them run their businesses in the most tax-efficient ways possible.
4. Take Advantage Of Personal Allowances
Everyone in the UK that is of working age (i.e., an adult) will have a personal allowance. In a nutshell, a personal allowance is what a person can earn before they must pay tax on their income.
Each year, an individual’s personal allowance increases to help them earn more money and pay less tax. However, some people don’t realise they aren’t making full use of their personal allowances.
For example, a married couple can transfer any unused portion of their allowance to their spouse.
5. Ensure You’re Using The Best Employment Status
Are you better off getting classed as employed or self-employed? As you can imagine, each person’s employment status will differ as it depends on the type of income they receive and how they get it.
When you get classed as employed, you don’t have to declare any extra (self-employed) income that is less £1,000 for the year under trading or property allowances.
It’s worth talking to an accountant or even HMRC to determine whether you should stay classed as employed or self-employed.
6. Add All Allowable Expenses To Your Tax Returns
Self-employed people complete annual self-assessment tax returns that get submitted electronically to HMRC. Part of the assessment involves informing HMRC of the total of your business expenses.
As you know, the higher your expenses, it minimise your tax liability. With that in mind, always ensure that you include all allowable expenses for each tax year.
If you use a mobile phone for business and personal calls, note that you can only submit the business element of your bills as allowable expenses.
7. Use Online Bookkeeping Software
Finally, an excellent way to minimise your tax liability is by using online bookkeeping software like Xero or FreeAgent. Such software is accessible via a web browser or an app on your smartphone, making it convenient to log income and expenditure.
Your accountant likely provides you with bookkeeping software to use, but if you don’t have an accountant, using such a solution will save you a lot of time and money.
Also, the cost of your bookkeeping software is a valid business expense, in case you wondered!