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As if covid weren’t difficult enough, just two years later we’re living through more tough times – an official cost of living crisis. 🙃
Whilst tax isn’t everyone’s favourite domain (especially during these unprecedented times), there are a few ways to make tax work for you instead of being an extra pain in the derrière.
Here are 9 UK tax saving tips for the cost of living crisis!
You’d be surprised how many people are overpaying tax simply due to an incorrect tax code.
It could take HMRC some time before they realise your tax code is incorrect. So it’s worth giving them a quick call to check yourself.
Underpaying tax is another reason to check your tax code. In a cost of living crisis, paying less tax sounds ever-so appealing. But being hit with a hefty fine due to underpaying is a lot worse.
There are three main components that determine your tax code:
It’s no secret that council tax has skyrocketed this year (along with pretty much everything else). There are two ways you may be able to save on council tax:
The council tax reduction depends on your circumstances. Your bill could be reduced by up to 100% if you’re:
Other factors taken into account are:
Secondly, the council tax rebate came into effect when the UK government was eventually forced to address the cost of living crisis.
The requirements to receive the £150 rebate is:
You may also be entitled if you’re:
Childcare is expensive. Point blank. For a child under two to attend nursery every day, parents could easily see themselves paying at least £200 per week. That’s £800 a month!
Now if you have two under two… ok, you get the point.
You may be able to claim up to £500 every three months (per child) to help with childcare costs. You claim more if your child has a disability.
🚨 Wait, it doesn’t end there! 🚨
If your child is between 3 and 4, you could also get 30 hours of free childcare.
Your eligibility to apply for either depends on:
What better feeling than that brown envelope coming through the post stating you’re owed a tax refund? *chef’s kiss*
Overpaying the tax you owe is actually fairly common and could be the result of changing jobs, being out of work for some time, going from an employee to self-employed and many more.
HMRC aren’t always quick to fix their mistakes. Which means tax rebates aren’t always automatic. The best way to find out whether you’re owed a rebate is to check. You can do this here.
Now this isn’t applicable for everyone – but if you’re married it’s worth checking.
If you pay tax at the basic rate of 20% and your partner earns less than £12,570 (and doesn’t pay income tax due to this), they may be able to transfer some of their personal allowance to you.
All of a sudden, marriage doesn’t sound like a traditional construct designed to uphold the patriarchy anymore, right?😬
We joke. But seriously, the tax benefits can be significant so don’t let them pass you by!
If you earn less than £17,570, you may be entitled to £5,000 of interest on any savings without having to pay tax on it. This is your starting rate for savings.
Confused? Here’s a quick example:
You earn £12,000 a year working part-time in the local coffee shop. Because your earnings are less than your personal allowance entitlement of £12,570 – you will be able to earn up to £5,000 in interest from savings without paying any tax on it.
Now you’re probably thinking ‘what if I earn more than the threshold?’
If you earn more than £17,570, you won’t be entitled to the starter rate for savings. If your income is less than this, the following rule applies:
If you’re self-employed, you may be familiar with tax deductions. If not, you’ll want to get familiar!
Claiming allowable expenses will reduce your tax bill. Of course, not everything is expensable so it’s best to check what you can expense – otherwise, you may be unknowingly committing tax fraud.
Employees may be able to benefit from company perks you didn’t even know existed.
Have you asked your employer if they offer:
A tax-free season ticket loan
A tax-season ticket loan could save you hundreds of pounds on your commute. This may cover the cost of taking the tram, bus or tube to work. Some even cover the cost of parking.
Some companies offer salary sacrifices; this means you can accept part of your wages in alternative form. How about a company car instead? Or perhaps childcare vouchers?
Accepting non-cash benefits will reduce your salary. And in short, less cash money = less taxable income.
If your company has performed well throughout the year, then you may be expecting a bonus. The good news is – well, it’s a bonus! The not-so-amazing news is that bonuses are taxable and could potentially even push you into a higher tax bracket.
Some employers offer bonus sacrifices – where you pay your bonus into a pension instead of your bank account. This is a tax-efficient way to save for the future and avoid extra income tax.
In a cost of living crisis (or on any other day, to be honest) no-one wants to receive a fine from HMRC. Especially for something that can be easily avoided.
For that reason, if you’re self-employed, 31st January should be the most important day of the year (after your birthday, of course 😌). This is the deadline to file online, but if you’re doing a paper tax return, you have until 31st October. ⏱️
If you’d prefer, TaxScouts can file your tax return on your behalf.
We also have a range of resources available if you want to know more about important dates and deadlines if you’re self employed – start with this guide!
Let’s see if you know all your tax year deadlines!
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