Plan 4 Saving Tax

 Tax saving guide


Reducing Your Tax Bill

No one wants to pay more tax than necessary and there is probably more scope for legitimately saving tax than you think without becoming involved in complicated tax schemes.

If you are self-employed then the key issue will be claiming all relevant expenses. So, what expenses are you able to legitimately claim? The principle is clear; the expenses must be 'wholly and exclusively in the course of your business'. Some are obvious. Most businesses will have some administration costs (stationery, stamps, telephone etc) and probably travel, advertising and so on. But there will be other expenses that relate specifically to your particular business - newspapers if you are a journalist, CDs if you are a musician, make up if you are a model.

If you keep the wholly and exclusively' phrase in mind whenever you consider whether an expense is legitimate, then you should not go far wrong. There are some exceptions though. For example, you can't claim for the cost of meals, even when entertaining clients, unless you are working from home overnight. Remember, much of English Law is case law so it doesn't always follow an entirely logical process of thought. Some professional advice in talking you through what applies to your business will almost always be money well spent and result in a tax saving each year from now on.

If you are employed, then expenses are not so readily allowable. In fact, compared to a number of other countries, what you can claim is very limited. Don't forget to claim for the cost of any professional memberships you may have, or any reimbursed mileage that is below the HMRC's allowable level. You should also be sure to include Gift Aid payments and additional pension contributions in your tax return as they will both reduce your tax liability of you are a higher-rate taxpayer. And if you are a non-UK citizen recently starting work in London but working abroad for a number of days each year, then there is the possibility of significant tax savings - but you will certainly need to obtain professional advice here.

Many people today properties which they rent out. There are potential tax savings for both income tax (on the annual profit from the letting) and capital gains tax (when you sell). Make sure when you buy a property let that you maximize the mortgage on the let property and not your main home in order to claim maximum tax relief on the mortgage interest (though there are limits on this). And make sure you claim for agent's fees, insurance, repairs, gas safety inspections and, if the property is let furnished, claim for the 10% wear and tear allowance. If you are married or in a civil partnership, put the property in joint names in order to ensure you both can claim your individual annual capital gains allowance when you sell.

This is only a brief overview but hopefully it has started you thinking. For some, the saving might be small or, at worst, you will discover that you are now certain that you are not paying too much tax. For others, a review could lead to an annual reduction in your tax bill, or even a significant refund.