Tax liability is the amount you owe to the government. It is important that your tax bill has been paid correctly or you can be fined or imprisoned.
However, there are ways to minimise the amount of income tax that you owe, and these tips will be listed in this blog.
Minimising your tax liability can be a great step towards your financial future. Whether you’re an expert taxpayer or just starting out, understanding the ins and outs of the UK tax system can lead to larger savings and greater peace of mind.
1 – Contribute More to Your Pension
When paying more into your pension, you will end up paying less tax on your annual tax bill whilst feeling the relief of knowing you will have more financial freedom during your retirement.
This is because when you pay into your pension, some of the money that would have gone to the government as tax goes towards your pension instead.
2 – Gift to Charity
Gift aid is a way to reduce the premium that the taxpayer owes at the end of the tax year. Gift Aid is a scheme in the UK that allows charities to claim back a tax return on donations made by taxpayers.
When you donate money to a charity through Gift Aid, the charity can reclaim basic rate tax on your donation from the government. This means that if you pay tax, the charity can receive more money at no extra cost to you. For example, if you donate £100 to a charity through Gift Aid, the charity can claim an additional £25 from the government, making your donation worth £125 to the charity.
This can help reduce your tax liability because the donation you make through Gift Aid is deducted from your total gross income before tax is calculated. So, by giving to charity through Gift Aid, you can support causes you care about while potentially reducing the amount of tax you have to pay.
3 – Take Advantage of Tax Credits
You can lower the amount of tax you owe by claiming tax credits for work-related expenses. These are costs that you have to pay as part of your job. This could include buying things like uniforms, tools, or subscriptions for your job.
Keeping good records and receipts of what you’ve spent is important. Just remember, not all work-related expenses can be claimed as a deductible business expense, so it’s best to check with HM Revenue & Customs (HMRC) to make sure you’re eligible.
4 – Transfer Your Personal Allowance To Your Spouse
Transferring savings to a spouse can help reduce interest tax liability by utilising both individuals’ personal savings allowances.
In the UK, each person has a tax allowance for savings interest. By transferring savings to a spouse who has not used up their allowance, the couple can collectively earn more interest tax-free. This strategy maximises the use of tax-free allowances and minimises the amount of interest subject to taxation, ultimately reducing the overall tax liability on savings income.
However, it’s essential to ensure compliance with tax regulations and consider any potential implications, such as gift tax rules.
5 – Investing
Investing offers numerous benefits to minimise tax liability. Certain taxable investment systems, like ISAs and pensions, provide tax advantages such as tax-free growth or tax relief on contributions.
Capital Gains Tax from investments are subject to Capital Gains Tax (CGT), but individuals can utilise annual CGT allowances and strategic selling to minimise tax liabilities. Investing can help you reduce your tax bills while building wealth for the future.
6 – Liaise With an Accountant
Investing in an accountant is a great way to help with financial planning and reduce your tax bill. Here at LJS Accounting Services, we can help you with all things tax from Corporation Tax to Capital Gains Tax.
We have a team of experienced and professional accountants who are here to help you maximise your tax profits. Our accountants are highly dedicated with a massive wealth of knowledge in accountancy and taxation.
Doing it this way with a tax professional, you will have the peace of mind that your tax bill has been taken care of correctly and the most effectively at the end of the tax year. Request a call back from one of our accountants today to start minimising your tax liabilities.
Keli Evans, Director at LJS Accounting Services, excels in taxation and statutory accounts. With a focus on strong client relationships, she leads a diverse portfolio, overseeing vital financial aspects like VAT, payroll, pensions, and taxation with a holistic and committed approach.
