How to pay less tax Legally

If you need help with your tax questions or any other aspect of your finances, try to call or email Small Business Accountant and you can speak to a member of our expert tax accountant to get individual guidance. We will guide you how to pay less tax legally.

Tax codes, allowances and deadlines

1. Tax code

Check your Tax Code, each year (the numbers and letters on your payslip). If you’re on the wrong code, you may be paying too much tax.

2. Capital gains tax (CGT) allowance

Remember that capital gains in the 2016-17 tax year under £11,100 are tax-free. Married couples and civil partners who own assets jointly can claim a double allowance of £22,200. From 6 April 2016, CGT is charged at 10% if you are a basic-rate taxpayer (except on property gains, where the rate is 18%) and 20% if you pay tax at a higher rate (except on property gains, where the rate is 28%). For 2015-16, the tax-free allowance was also £11,100 per person.

3. Tax return deadlines

If you missed the 31 October deadline you have still chance to make an online tax return. You can do your tax online up to 31 January, but paper tax returns need to be in three months earlier than online tax returns to avoid a £100 fine.

4. Annual investment allowance

If you are a landlord or run your own business, take advantage of the annual investment allowance (AIA) to claim for capital expenditure on items such as tools and computers. From January 2016, you can claim relief on up to £200,000 a year. In 2015, the limit was £500,000.

5. Marriage allowance

From 6 April 2016, married couples and civil partners can transfer £1,100 of personal allowance from the lower-earning partner to the higher earner, saving them up to £220 in tax. This is only available if the higher earner is a 20% taxpayer – no transfer is possible if they are a 40% taxpayer.

How to pay less tax if you’re self-employed

6. Tax-deductible expenses

If you’re self-employed, don’t forget to claim all your tax-deductible expenses, including cash expenditure where eligible.

7. Self-employed car costs

If you’re self-employed, you can claim the running costs of a car but not the cost of buying one. If you use the same car privately, you can claim a proportion of the total costs.

8. Cash-flow boost for self-employed

If you are setting up as self-employed, you may be able to improve your cash flow by choosing an accounting year that ends early in the tax year. This maximises the delay between earning your profits and your final tax demand.

9. Annual losses

If you are self-employed, you can carry forward losses from one year and offset them against profits from the next.

10. Payments on account

If you are self-employed and expect to earn less in 2016-17 than you did the year before, apply to reduce any payments on account that HMRC asks you to make.

Saving tax on property income

11. Rent a room

Rent a room relief is an optional scheme that lets you receive up to £7,500 (increased 6 April 2016 from the previous limit of 4,250) in rent each year from a lodger, tax-free. This only applies if you rent out furnished accommodation in your own home.

12. Landlord’s expenses

If you rent out property, you can deduct a range of costs before declaring your taxable income. These include the wages of gardeners and cleaners and letting agent fees.

13. Tax relief on your mortgage

You can claim tax relief on the interest on a mortgage you take out to buy a rental property, even if it the rental property is abroad. This relief will be reduced from April 2017 onwards.

14. Reduce CGT on a rental property

Landlords are normally liable for CGT when they sell a rental property. If it has been your main home at some time in the past, you can claim tax relief for the last eighteen months of ownership.

Pay less tax on savings and investments

15. Isa allowance

Use your tax-free Isa allowance. From 6 April 2016, the annual limit will stay at £15,240, the same as it was for 2015. This can all be put in a cash Isa, all in a stocks and shares Isa, or split between both cash and stocks and shares. See our guide to tax on savings and investments for more details.

16. No CGT on shares held in an Isa

There is no CGT to pay when you sell shares or units held in an Isa.

17. Junior Isas

Use Junior Isas or Children’s Bonus Bonds to avoid being taxed on gifts you make to your own children.

18. Transfer assets

Transfer savings and investments to your husband, wife or civil partner if they pay a lower rate of tax than you do.

19. Dividend allowance

From 6 April 2016, the first £5,000 you receive in dividends from investments is tax-free. Basic-rate taxpayers will pay 7.5% tax on dividends they receive above the threshold, however. Higher-rate taxpayers pay 32.5% and additional-rate taxpayers 38.1%.

20. Personal savings allowance

From 6 April 2016, the first £1,000 of interest you receive from savings is tax-free if you are a basic-rate taxpayer. If you are a higher-rate taxpayer, the threshold is £500. It is only if your savings income exceeds the allowance that any tax is due on it. This will no longer be deducted at source – if the tax is due, you can pay it via self-assessment or have it deducted via PAYE through an adjustment in your tax code.

Tax savings for older people

21. National Insurance

Make sure you stop making National Insurance contributions if you carry on working beyond state retirement age (currently 63 for women and 65 for men).

22. Gift Aid

Making donations to charity through Gift Aid can reduce your taxable income.

23. Tax relief on gifts

If you are in a higher tax bracket, you can claim back the difference between the basic and higher rate of income tax on any Gift Aid donations.

24. Inheritance tax

Lifetime gifts are not normally counted as part of your estate for inheritance tax purposes if you live for a further seven years after making them. Known as potentially exempt transfers (PETs), they can reduce your residual estate significantly.

Tax savings through employee benefits

25. Season ticket loan

If you are a commuter, check to see if your employer will give you a tax-free loan to buy your season ticket.

26. Pool cars

Use a pool car for occasional business travel if your employer provides these.

27. Childcare schemes and tax credits

If you are an employee and pay for childcare, ask your employer if they have a childcare scheme. Salary sacrifice childcare schemes are easy to establish and can result in substantial savings for both employees and employers. For more details, see working for an employer. Child tax credits can also save you money.

28. Company car

If you are entitled to a company car, consider whether it would be more tax-efficient to take a cash equivalent in pay instead.

29. Going green

If you are changing your company car, consider a low-emissions model . These are now taxed at a lower percentage of their list price than cars with a high CO2 rating.

30. Pay into a pension scheme

Contributions to your employer’s pension scheme (including any additional voluntary contributions you make) can be made from your gross pay before any tax is charged.

If you do not understand all instruction above, please let Small Business Accountant handle your tax affairs, You will not be disappointed.