How Tax Savings Could Keep You Warm! Whilst the cost-of-living crisis is upon us and the politicians argue over how best to help the country, there is no escaping the fact that prices are escalating, food bills increase, and the energy crisis looms like a black cloud ahead of us.
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aturally we want to make savings to combat increasing expenses and in most households the amount paid in taxes is a major expense. Here we have outlined numerous ways that tax savings can be achieved:
Savings for individuals Tax codes An employer uses your tax code to calculate how much tax to deduct from your pay. HMRC issue tax codes each year however these are not always correct, especially if anything has changed, for example your salary or expenses or you have started a new job. If you don’t check your tax code and alert the tax authorities to any errors, over payments of tax could go undetected for many years. A correction could lead to a welcome repayment of tax.
Pensions Income tax is deducted from earnings at rates of 20%, 40% and 45% depending on the level of your income. Anyone whose income just creeps into the next tax band could increase their pension contributions so their income is taxed at the lower rate. Whilst paying out more from your salary may not feel like a saving, you are likely to be better off in the long run as the money you’d have been paying due to the higher rate of tax is instead going into a tax-free 72
pot for your retirement. If your income is between £100,000 and £125,140 your effective tax rate is actually 60%, this is because your personal allowance is gradually withdrawn as your income exceeds £100,000. Anyone with income in this bracket would make substantial savings by lowering their taxable income and pension contributions are an efficient way to do so.
National Insurance savings Employees with more than one job may be able to defer paying Class 1 NIC. If applicable you will usually pay a reduced rate of 3.25% on one of your employments rather than the standard rate of 13.25%. Increasingly, members of the household may be seeking a second job to help make ends meet so understanding how National Insurance is applied could create crucial savings. If you have paid too much NIC, which can often be the case if you have two employments, then you can apply for a refund.
Claiming for all your expenses If you are not reimbursed by your employer for your expenses, it is up to you to make a claim against your tax bill. • The cost of your normal commute to work is not an allowable expense however if your place of work is
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temporary then you can make a claim, or if you work from home and travel to see clients, the cost of those journeys is allowable. • Following the pandemic many workers continue to work at home and can claim tax relief on a proportion of their household bills. HMRC have a simplified flat rate which can be claimed according to the number of hours you work at home, or you can calculate your actual household costs and then deduct a proportion of them. • Generally normal work wear isn’t an allowable expense however if you wear labelled uniforms, or safety clothing then you may be able to www.lancmag.com
