How to Reduce Taxes with These Easy Fixes
How to reduce taxes with our easy to follow 8 step guide! If you’ve just completed your tax return in time for the 31 January deadline and been shocked by the amount you’ll have to pay out – read on and find out how to reduce taxes for the next financial year.
I run a specialist engineering business, and use my own car to take parcels and mail to the post office at 5pm. I do about 100 miles a week. Of course, I’ve always claimed the cost of petrol as a business expense but I didn’t know I could claim a capital allowance for using my own private car as well.”
While having breakfast one day, Ian called the Inland Revenue Helpline and they confirmed this tax-saving opportunity. “It took me about six minutes to do – and I’ve cut my income tax bill by £502 this year alone!” By using these five simple (and perfectly legal) strategies, we virtually guarantee you won’t have to pay as much as you thought either.
Quick Tax Fix #1 Save Up to £370 a Year with STAVs
You’ve probably already got an ISA, but did you know you can also access Savings Tax Avoidance Vehicles? These are available to everyone, not just millionaires – but the government would much rather you didn’t know this! The simplest form of STAV is a National Savings Ordinary Account. It can earn you £70 in interest each year, tax free. And you can take out a savings bond with a friendly society, and save another £300 a year, tax free.
Quick Tax Fix #2 Unlock Your Hidden Tax Allowance
Everyone has a personal tax allowance (£10,500 in the 2015-2016 tax year), whether they have an income or not. So, if your partner doesn’t work, put your joint savings entirely in their name, or share your allowance between yourselves for the biggest tax savings. You could earn a massive extra £10,500 tax free each year with this strategy! Even your children have a personal tax allowance – so gift them money now for their future, and pay no tax. Note: there’s a £100 per year tax-free limit on interest paid to children as a result of gifted money.
Quick Tax Fix #3 Become More Interested in Your Loans
Most people know that tax relief has been available on mortgage payments under the MIRAS (Mortgage Interest Relief At Source) scheme. But several other types of loan also qualify for relief too. Loans taken to invest in a business or buy plant or machinery can qualify. For details, ask for Inland Revenue leaflet IR340, and then claim it on your tax return.
Quick Tax Fix #4 Get Tax Back for Your Training
Another great trick on how to reduce taxes is to claim back on any training you do for your work or business. You can take a full-time vocational training course (lasting from four weeks to one year) and get full tax relief on the cost. In many cases, this is given by the training organisation but check. If you haven’t received this valuable allowance, simply claim it on your tax return. Ask the Inland Revenue for leaflet IR119 for full details.
Quick Tax Fix #5 Cash In With Capital Allowances
Capital allowances are the deductions against tax you get for making major business purchases – such as a car, van, machinery or computer. But did you know you can also claim CA’s for private capital purchases used partly for business and partly in your private life? Simply add up the cost of the items (separate calculations must be made for cars and other capital items, and for cars worth over £12,000), then work out the capital allowance (normally 25%, but 40% in the first year for some items). Now multiply the amount of your claim by the amount of business use.
For example, if you bring a car worth £10,000 into your business, your capital allowance will be £2,500. If just 20% of your mileage is for business, you’ll still be entitled to a £500 tax credit. Just fill in the amount on your tax return to claim it back!
Still asking “how to reduce taxes“?
Three More Tax Efficient Strategies
• Pension contributions can be claimed as a tax allowance. Use them as a tax efficient way of saving. Leaflet IR330 gives full details.
• If you’re in business and make a loss one year, you can set it against profits in previous or future years, or against other non-business income.
• Uneven income stream? Writers, artists and farmers can’t guarantee how much money they’ll have coming in from one month to the next – so they may be able to average their income over several past and future years to make the best use of tax allowances. Ask the Inland Revenue for details of special schemes.
And always put full details of your savings interest and dividend payments on your income tax return – even though the tax due has already been deducted from what you’ve received. The tax you’ve paid will be credited against what you owe!
Find out how to claim more of your tax back, by calling your local Inland Revenue office, walking into any Inland Revenue Enquiry Centre (see your local phone book) or visit.
How to reduce taxes, More great tax saving tips brought to you by Money Hitman!