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How to save money on tax

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We all have to pay some form of tax, but there are ways in which you can save money on tax. This guide shows you some of the best ways of reducing your tax commitments.

Check your tax code

This might seem simple, but most people don’t pay attention to their tax code. However, if you’re on the wrong one you could be losing out by paying too much. If you don’t know what your tax code is, you’ll find it on a recent payslip.

Use your ISA allowance

Everyone is entitled to a yearly tax free ISA allowance and it’s a highly efficient way of saving. The allowance will go up to £15,000 from 1st July 2014 and this can either all be invested in cash or stocks ISAs or a combination of the two.

Childcare savings

Childcare costs can account for a large proportion of a family’s monthly outgoings. Many employers run childcare schemes, where a percentage of your wages is converted into vouchers that you can then use to pay for childcare. The money is taken out before tax, reducing the amount of income you’re taxed on.save money on tax, pile of pound coins

Make pension contributions

This is another way of limiting the amount of your salary that is taxed. If you pay money into a work place pension scheme, the amount you put in will be taken out of your salary before tax.

Transfer savings

It could be beneficial to move any investments or savings between married couples or civil partners if they are in a lower tax bracket.

Tax allowances

Tax allowances, including Capital Gains Tax and Annual Investment Allowance (AIA), could help you to reduce your tax bill. For the financial year 2014/15, you can make up to £11,000 in capital gains before you need to start paying tax. This amount is doubled for assets that are owned jointly by couples who are married or civil partners.

The AIA is available to those who have their own business or landlords. It enables you to claim tax relief on a maximum of £500,000 a year that you’ve used to purchase capital goods, including professional tools or IT equipment.

Self-employed benefits

If you’re self employed there are a number of ways in which you can reduce your tax commitments. You can claim back the tax on certain allowable expenses, including travel and accommodation. The types of items you can claim for depends on whether you work from home or have business premises and if you use you car solely for business reasons or have it for personal use as well.

When you first set up your business you can choose an accounting year so that it finishes near the start of the tax year. This increases the amount of time from you making the profits to having to pay tax on them. You can also offset losses from one year against the profits you make in the next.

Choosing the right company car

It might make financial sense to ask for the equivalent in cash rather than taking up the option of a company car. If you do have a company car, those with lower emissions are charged less in tax. If your company has a pool car, this could be a better option if you only require it infrequently.

These are just some of the ways in which you can save on your tax bill. It’s important that you consider all the options open to you, to ensure you make the best use of your finances.

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About Catherine Stern

About Catherine Stern

Catherine Stern is a freelance writer with a background in marketing and PR. She currently writes web content on a range of subjects, from finance and business to travel and home improvements. As a working single mum of two young boys she understands the pressures that today’s working parents face and the topics they want to read about.

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