Top Tips for Minimising Your Tax Bill
There are no two ways about it – tax is a hassle, and an expensive one at that. It is something about which most people simply do not want to think, or about which they are confused.
But by giving your tax affairs a little bit of thought you can significantly reduce the amount you pay every year. We have compiled some top tips to help you minimise your tax bill with the least effort possible.
1. Get what you are entitled toEveryone is entitled to a personal tax allowance. This means that the first portion of your income is free of tax. The personal allowance threshold changes each tax year, and the coalition government has pledged to raise it significantly in coming years.
All too often, though, employers fail to take personal allowances into account when deducting tax from your pay packet. You should keep an eye on your tax code and make sure that you are getting your allowance.
2. Plan for inheritanceInheritance Tax (IHT) is one of the most potentially expensive tax propositions with which you are faced. The so-called ‘death duty’ can take a massive chunk out of your estate, and significantly reduce the amount of cash your dependants inherit.
You should think ahead to minimise the impact of IHT. This might involve establishing a trust, gifting away assets gradually, or transferring assets to your spouse. Further information on IHT is available elsewhere on this site.
3. Consider employee benefitsIf you are an employee, you are likely to already be receiving a range of employee benefits. These might include gym membership, a pension plan, or a company car. Some employee benefits are more tax effective than others, and the efficient use of benefits can help to reduce the amount of money you give to HMRC.
You should investigate salary sacrifice schemes, under which you give up a portion of your salary in exchange for an employee benefit – and a reduced tax burden. Your HR department and an accountant should be able to give you more information on this.
4. Self-employed? Learn the rulesIf you are self-employed, taxation can seem like a minefield. There is an endless litany of rules, but it is vital that you learn exactly what applies to you. By teaching yourself the rules (or hiring a good accountant), you can significantly reduce the amount you pay each year.
Perhaps the most important lesson is to make use of all allowable expenses. Information on the types of expenditure that can be offset against tax is available elsewhere on this site.
5. Always file and pay on timeFinally, it is worth remembering that many people needlessly inflate their total tax bill by filing returns or paying bills late. This causes them to build up interest and penalty charges that can easily multiply the amount that you actually owe. As such, one of the simplest ways of keeping your tax bill down is simply to pay what you owe on time.
Tax is a certainty. If you are earning enough, you will certainly have to pay it – but with some basic knowledge you can minimise the amount that you hand over to the taxman.