Without proper financial planning or advice from a professional, lots of people end up paying more tax than they need to each year.
But HMRC wants people to pay ‘the right amount of tax’, and there are lots of allowances, reliefs, and expenses that you can make use of – perfectly legally – to reduce the amount you owe.
It’s hard to do that, though, without proper tax planning. Here’s how getting the right advice can save you money on your tax bill.
Getting the basics right
The first job of an accountant when it comes to your tax planning is to confirm all the basics are set up correctly.
That includes things like checking your tax code to make sure you’re being taxed correctly and looking at eligibility for both working tax credit and child tax credit if you care for children, disabled workers, or other low-income workers.
The next step is to assess your personal financial situation.
Looking at your pension scheme is a good place to start. When you save into your pension, you’ll be given tax relief – meaning some of the money that you would’ve paid in tax goes into your pension pot instead.
The rate of relief depends on your income, and an accountant will advise on the potential savings you could make through additional contributions, as well as whether you’ll need to claim the relief through your self-assessment tax return.
They’ll also look at things like the marriage allowance, which could benefit you if your spouse or civil partner earns less than the personal allowance.
Savings and investments also present an opportunity to save on your tax bill, which is why it’s worth getting professional advice when it comes to making the most of your personal savings allowance, annual ISA allowance, and capital gains tax annual exempt amount.
If you’re self-employed and running a business, there are several other considerations regarding tax planning.
An accountant will advise you on the best way to pay yourself to benefit from lower tax rates – perhaps through a combination of salary and dividends, for example.
They’ll also advise on tax-deductible expenses – looking at what is and isn’t eligible for tax relief – as well as business assets like cars (especially electric vehicles, which have their own rules).
If you’re a landlord, there are a range of costs you can deduct from your taxable income – from landlords’ insurance to ground rents, gardeners’ fees to replacing domestic items.
There are also schemes like Rent-a-Room, which can apply if you rent out accommodation in your own home (while living there), and, if you’re planning on selling your property, there’s your capital gains tax exempt amount to consider.
Planning for the future
As well as saving money on your existing tax bill, professional advice can be invaluable when it comes to planning for the future.
Without proper estate planning, your loved ones could face an inheritance tax bill of 40% on any property, savings, and any other assets you pass on.
Giving gifts before you die, making charitable donations, and considering setting up trusts can all be ways to reduce this bill – but they’re complicated, and you’ll need guidance to ensure you’re doing it right.
Can’t I do all of that by myself?
While you might be able to make some of the above changes yourself, working with an accountant means everything’s handled for you – and you’ll be able to spend that time on what’s important to you, instead.
It also means you won’t risk missing any deadlines, and receiving potentially hefty fines if you do.
The best way to find out how to save money on your tax bill is to speak to an accountant. Your situation is entirely unique, and that means the advice you receive should be bespoke, too. Speak to our team today.