Being Smart with Your Personal Finances: Uncover Tips to Save Tax in UK
When you earn an income in the UK, you must also pay tax. Tax rates in the UK are pretty substantial, although it offers everyone the tax-free personal allowance amount of £12,570. However, you could be paying more tax than you should when you don’t know how to save tax in UK.
You are taxed based on the income you earn through employment with a company, self-employment, savings interest, property, or pensions.
Here are tips on how to reduce income tax in the UK. Remember that some apply to you at any time; some do not. Try applying for as many tax allowances as possible to enjoy your income for your personal growth.
Employee Tax Relief
According to the UK government, you could claim tax relief if you buy tools and equipment, pay for subscriptions and professional memberships, travel and overnight expenses, work clothing or uniforms, and work from home.
You can only claim tax relief in the same year you pay tax and when your employer does not reimburse you for your work-related expenses. However, there are restrictions on how much you claim per expense.
| Work-related expenses | What you can claim for | What you cannot claim for | How much can you claim |
| Work clothing, uniforms and tools | Cleaning, repairing or replacing a uniform or specialist clothing
Repairing or replacing small tools you need to do your job |
Personal protective equipment (PPE) | The actual amount you spent – keep your purchase receipts
An agreed fixed amount |
| Working from home | Household costs – gas and electricity for your work area
Business phone calls If your work contract states working from home is the only option |
If you choose to work from home
For things used for private and business, such as rent and broadband access |
£6 a week – you do not need to keep receipts for your extra costs
Costs incurred above the weekly amount – keep proof of receipts, bills or contracts |
| Travel and overnight expenses | Public transport costs
Hotel costs if you have to stay overnight Food and drink Congestion charges and tolls Parking fees Business phone calls and printing costs Drive your own vehicle for work/business visits |
If you are travelling to and from work
Fuel, electricity, vehicle tax, MOTs, repairs |
Costs incurred during the travel, keep receipts, if any
Ensure the hotel stay and meal costs receipts have dates of the stay on them Based on approved mileage rates – keep records of work journey mileage |
| Professional fees and subscription | Professional membership fees to ensure you could do the job
Annual subscriptions paid to approved professional bodies and learned societies |
Life membership subscription
Your employer pays fo you Paid to professional organisation unapproved by HMRC |
You can ask your organisation, how much you can claim |
| Buying other equipment | Equipment expenses that qualifies as capital investment allowance
Usage is purely for work, not personal use |
Cars, motorcycles, or bicycles to do work | The entire cost of the expenses or
The difference if an employers covers part of the expenses |
Self-Employed Tax Claims
Next, we look into cutting your tax bill or paying less when you are self-employed. You commonly have costs involved in sustaining your business. Keep a record of everything, and if you’ve sorted which expense falls into which tax-relief claim, the more income tax savings you’ll get in the UK.
There are two significant self-employed expenses and tax claims available.
| Self-employed claimable expenses when using a business premise | Self-employed claimable expenses when working from home |
| Heating | Heating |
| Lighting | Lighting |
| Cleaning | Cleaning |
| Water rates | Insurance |
| Rent | Mortgage Interest |
| Business rates | Council tax |
| General maintenance | Water rates |
| General maintenance |
Note that you can only claim work-from-home expenses in your area. So, if you take up a quarter of your home as your workspace, calculate your costs to cover that quarter of the house and claim the necessary tax relief.
How to Save Tax in UK on Savings
Through the Personal Savings Allowance (PSA)
Currently, the UK government offers a tax-free interest amount of up to £1,000. The income tax band affects the tax-free interest amount.
| Income Tax Band | Tax-free interest income |
| Basic Rate | £1,000 |
| Higher Rate | £500 |
| Additional Rate | £0 |
If you exceed the £1,000 threshold, then you must pay tax. You will pay it through a deduction of Pay-As-You-Earn (PAYE for employees) or via self-assessment for the self-employed.
Through the Individual Savings Account (ISA)
The UK government encourages everyone to open an ISA to ensure their money grows. In the tax year 2023/2024, you can deposit up to £20,000, which is not taxable. You have the option of Cash ISA or Stocks and Shares ISA. You can deposit the money into either one or split it into both.
Through your savings starter rate
You may qualify for a savings starter rate when you earn enough income through savings interest, but your job pays you below £12,570.
You can enjoy tax-free interest up to £5,000. The amount adds up to your personal savings allowance. So, the maximum amount of tax-free money can be up to £18,570.
Pay into Pension
Another way to reduce taxable income in the UK is to pay into a pension scheme. If you receive any bonus income, it can be taxed. But, if you pay into a pension, the entire bonus amount is not taxable. The only caveat is that you don’t get to enjoy the bonus immediately.
The bonus stays in the pension until you are entitled to pension benefits. Thus, if your employer gives out a regular yearly bonus, you can accumulate it in retirement.
Reducing Property Income Tax
There are several property spectrums you can claim for tax relief. There is the Rent-a-room Scheme, landlord expenses, and landlord domestic items replacements.
Rent-A-Room Scheme
The scheme requires you to live in the house where you rent out a fully furnished room to a tenant. Onwards, the income received from the rental is tax-free for up to £7,500 a year.
You will need permission from your landlord if you don’t own the property, your mortgage provider if the home is still under mortgage, and your home insurance provider for both cases.
Using the rent-a-room scheme, you cannot deduct any landlord’s expenses or replacements.
Landlord Expenses & Domestic Item Replacements
If you rent out your property, costs such as advertising for new tenants, accounting charges, agent’s fees, and many more are incurred. The list of claimable expenses as costs to the landlord is as follows:
- Water, gas, electricity and council tax
- Letting agent’s fees
- Servicing costs – gardeners, cleaners
- Legal fees for tenant agreements
- Landlord insurance
- Accountant’s fees
- Rents, ground rents and service charges
- Direct costs such as phone calls and advertising for new tenants
The domestic items within the rental property can also be included as costs for the landlord whenever they have to replace them. They include beds, carpets, curtains, crockery and cutleries, sofas, fridges & washing machines. The replacement claim is only for a like-for-like replacement.
Conclusion
These are some of the main avenues you can work on when applicable. When you plan your tax well, you can pursue and enjoy the life you desire in the UK. However, if you need more information on saving tax in the UK, contact us as your local tax expert advisor on your every need.
