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10 Ways to reduce your tax bill

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10 Ways to reduce your tax bill

EVERYONE MUST PAY TAX, BUT DON’T PAY MORE THAN NECESSARY – THERE ARE MANY WAYS TO REDUCE YOUR BILL, AND YOUR RETURN IS THE PLACE TO CLAIM LOTS OF THESE SAVINGS

Arranging your finances in the most tax-efficient way possible will mean your total tax bill is as low as possible. There are all sorts of tax reliefs and allowances available. To claim these tax breaks, complete the relevant sections in your self-assessment tax return. Here are 10 potential tax- saving tips to get you started:

  • In the tax year 2018-19, if you were born before 6 April 1938, you may be eligible for an increased personal allowance. It means you will pay less income tax. The Allowance for this year is £11,850
  • If you’re self-employed, don’t forget to claim all your tax-deductible expenses, including cash spending where eligible. Keep receipts for such expenses so you can make the claims and produce evidence of them.
  • If you running a business from home, do not forget to claim for the costs associated with business activities. You can find more details on allowable expenses in our blog.
  • If you are a landlord or run your own business, take advantage of the annual investment allowance to claim for capital expenditure on items such as tools and computers.
  • Unfortunately Landlords are only able to claim 20% of interest on mortgage in 2019-20 and 0% 2020-21
  • If you are self- employed and your business loses money over the tax year, you can carry forward these losses in order to offset them against any profits you might make in the following year.
  • Making donations to charity through Gift Aid will reduce your taxable income. If you are in a higher tax bracket, you can also claim back the difference between the basic and higher rate of income tax on any of these donations.
  • It’s not just standard cash and stocks and shares Isas that offer tax breaks. Investors can make a bigger dent in their tax bill by putting their money in government-backed initiatives, such as the enterprise investment scheme (EIS) or venture capital trusts (VCTs).
  • Contributions to your pension scheme (including any additional voluntary contributions you make) attract tax relief – if you are a higher-rate taxpayer, you may be able to claim additional relief via your tax return.
  • If you are self- employed and expect to earn less in 2019-20 than you did the year before, apply to reduce any payments on account that HMRC asks you to make.

THE LEGALITIES

Tax avoidance is the practice of reducing your tax bill by legal means, while tax evasion – deliberately failing to declare income on which tax is due – is a criminal offence.

However, the Government has been trying to crack down on aggressive tax avoidance in recent years, and HMRC now asks a specific question on the tax return about whether you
have used tax avoidance schemes. If it suspects the scheme has been set up for the sole purpose of tax avoidance, it may challenge its legality and demand that you pay more tax.

If you are in any doubt, do not hesitate and contact experienced and trusted professionals such as Correct Balance LLP.

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