Paul Benson Accountants

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.

Naturally 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 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£100,000 and £125,140 your effective tax rate is actually 60%, this is because your personal allowance is gradually withdrawn as your income exceeds £100,000.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

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

claim a flat rate expense each year depending on your job and the industry you work in. • If you are required to pay for memberships or subscriptions that are genuinely needed for your job, then a claim can be made against tax for the costs. Likewise, this applies to any training courses you attend which are directly related to the job you are doing.

Trading and Property allowances

The £1,000 trading allowance and £1,000 property allowance are not widely known but anyone looking to increase their income can earn up to £1,000 gross income from trading or £1,000 gross rents on top of their usual income and this would be completely tax free.

Funding education

The cost of school fees or university tuition fees can be a huge drain on resources. It may be possible to meet this expense extremely tax efficiently by using a trust funded by grandparent’s monies, or if the children are adults at university, it could be funded by their parents. Tax planning using trusts can offer many advantages in terms of protecting assets and saving Inheritance Tax in addition to funding education tax efficiently.

Savings for married couples Transferring the married couple’s allowance

If one partner earns less than the personal allowance, currently £12,570, and the other partner is a basic rate taxpayer, they can transfer up to £1,260 of their allowance to the tax paying spouse, saving them £252. It is possible to back date a claim for up to 4 years creating a significant repayment of tax.

Equalising income

Married couples should not only ensure they are utilising both personal allowances but also both basic rates of tax. Income can be redistributed

between spouses by transferring income producing assets to a lower income spouse, the transfer of assets between spouses is tax free for capital gains tax so transfers of shares or property can easily be made.

Using exemptions

Both spouses are entitled to an annual capital gains tax exemption, currently £12,300. If assets are to be sold, they should often be transferred into joint names prior to sale to use both allowances. However, if there is disparity of tax rates between the spouses this action needs closer attention and advice should always be sought prior to a sale so the maximum savings can be achieved.

Avoiding the child benefit charge

Child benefit must be repaid totally if one spouse earns over £60,000 and repaid in part if income exceeds £50,000. If both spouses earn less than £50,000 there would be no repayment. This further emphasises the importance of looking at the household income as the transfer of income producing assets to achieve equalisation may be beneficial. For further information on any of these tax saving opportunities please do not hesitate to contact us, at Benson accountants we can look at your individual circumstances and ensure that you are maximising your household income, tax efficiently. M The Mill, Station Road,

Wigton CA7 9BA

N 01697 508925

E info@paul-benson.co.uk

D www.paul-benson.co.uk

F @paulbensonaccountants