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How to Plan Ahead and Reduce Your Tax Bill

The new tax year has arrived, and that means it’s time to start planning ahead if you want to reduce your tax bill. Whether you’re an experienced DIY tax filer or need the help of a professional tax accountant, there are plenty of ways to save money on your taxes in the next twelve months. In this blog post, we’ll look at the different options available and the tips and tricks that can help you get the most out of your tax savings.

Check your PAYE code

As the new financial year begins, it’s essential to check your PAYE code. This is a tax code set by HMRC that sets out how much tax you should pay throughout the year.

Checking your PAYE code is simple. All you need to do is look at your payslip, as your tax code is listed there. If you’re not sure what your code means, you can find out by entering it on the HMRC website. Alternatively, you can contact HMRC directly for more information.

If you think your code is incorrect, you can change it with HMRC by contacting them or by filing an amended tax return. This must be done before the end of the financial year or else you may face penalties from HMRC.

By taking the time to review and change your PAYE code, you can ensure that your tax payments are correct and save yourself money in the long run. This is a great way to plan ahead and make sure you have a successful financial year.

Review your expenses

As the new financial year begins, it’s important to review your expenses and adjust your budget accordingly. The end of the tax year can be a great time to take stock of how much you have spent, how much you have saved, and where you can make improvements in the next 12 months.

It’s wise to look back over the last financial year and create a budget that incorporates any new financial goals or changes in circumstances. Setting realistic financial goals and creating a plan to reach them can help you make the most of your income in the next year.

When planning for the future, forecasting can also be a valuable tool for budgeting. By forecasting, you can anticipate any potential changes in income or expenses and adjust your budget accordingly. This can be especially useful if you’re expecting to receive an inheritance, or if your income or tax status will change.

By taking the time to review your expenses and budget for the new financial year, you can ensure that you are making the most of your income and potentially saving yourself from paying unnecessary taxes.

Save into a pension

A pension is an excellent way to save tax in the new year. When you save into a pension, the contributions you make are tax-deductible, so you can reduce your taxable income and get a tax break. Pension contributions are also exempt from National Insurance Contributions, which can reduce your overall tax bill even further.

When you make pension contributions, you can choose between making them into a personal pension or a workplace pension. Personal pensions are usually self-invested, with more freedom on how you invest the money, whereas workplace pensions are typically managed by a third-party provider.

If you’re self-employed, you can also set up a personal pension and claim tax relief on your contributions up to 100% of your relevant earnings, or up to £40,000 per annum – whichever is lower. You’ll need to keep track of how much you’ve contributed to your pension in each tax year and provide evidence of your contribution when filing your Self-Assessment.

When setting up a pension, it’s important to take into consideration all your options before committing. You should compare charges, consider the performance of different providers, and consider the potential risks associated with investing. Ultimately, you should aim to make sure that your pension plan suits your individual circumstances.

Finally, be aware that some types of pensions have their own tax rules and limits that you should familiarise yourself with. It’s always best to seek professional advice if you’re uncertain about anything related to saving into a pension.

Invest in an ISA

An Individual Savings Account (ISA) is one of the best tax-efficient investments you can make in the UK. ISAs allow you to put away up to £20,000 of your annual income without being taxed on it. This means you can save money and get the most out of your savings by avoiding paying tax.

When choosing an ISA, it’s important to consider what type is right for you. The most popular types of ISAs are Cash ISAs, which offer a higher rate of return than traditional bank accounts; Stocks and Shares ISAs, which offer more long-term growth potential; and Innovative Finance ISAs, which allow you to invest in peer-to-peer lending.

When investing in an ISA, it’s important to consider the risks associated with your chosen investment. Many investments carry higher risks and therefore require more time and research to understand them properly before you invest. It’s also important to remember that the value of any investment can go down as well as up, so make sure you are comfortable with the level of risk you are taking on.

Finally, when investing in an ISA it’s important to make sure you have a plan. Consider how long you plan to invest for and how much you need to invest to reach your goal. Set yourself targets to review your investments periodically and adjust your strategy accordingly. By investing sensibly and regularly into an ISA, you could reap the benefits of a tax-free income for years to come.

Consider your residence status

Are you a UK resident for tax purposes? If so, it’s important to understand the different rules that apply to your tax liabilities. Generally, those who have been in the UK for 183 days or more in a tax year will be considered a UK resident for tax purposes.

If you are not a UK resident, you may be eligible to benefit from the Non-Resident Landlords scheme. This scheme allows non-residents to receive rental income from UK property without having to pay UK tax on it. It’s important to be aware of this option and speak to an accountant if you think it may be relevant for you.

Another key factor to consider when thinking about your residence status is your domicile status. This determines the countries where you owe tax and which taxes you must pay. You can either be domiciled in the UK, or in another country, such as the US, depending on where you were born or have lived for a long period of time.

For those with a UK domicile status, there are rules about claiming foreign income exemption, the remittance basis, and overseas workdays relief. These could all potentially lower your tax liability.

To get a better understanding of how your residence status affects your tax situation, it’s always best to speak to a qualified accountant. They will be able to advise you on the best way to save tax in your particular circumstances.

Review your self-employment status

If you are self-employed, it is important to review your status to ensure you are making the most of your tax situation. There are many things to consider when managing your tax affairs as a self-employed individual, such as the type of business you are running, the structure of your business, the type of income you receive, and the tax reliefs and allowances available.

One of the key factors to consider is whether or not you should register with HMRC as a self-employed individual. If you are trading for a profit then it is likely that you will be required to do so. By registering as self-employed, you can benefit from tax advantages such as claiming deductions for business expenses and receiving tax relief on pension contributions. It is also important to keep up to date with any changes in legislation that could affect your taxes.

You should also consider whether or not you should be filing a self-assessment tax return. You may be required to do so if your profits exceed the relevant threshold. Additionally, you may be eligible for certain tax reliefs which require you to submit a return, such as capital gains tax relief or enterprise investment scheme relief.

Finally, it is important to check that your National Insurance contributions are up to date. As a self-employed individual, you are responsible for paying your own National Insurance contributions and it is important that you keep track of these payments. Failure to pay the correct amount of National Insurance can result in a penalty from HMRC.

By reviewing your self-employment status, you can ensure that you are taking advantage of all the available tax benefits and deductions, and that you are meeting all your obligations as a self-employed individual. This can help to reduce your overall tax bill and put more money back into your pocket at the end of the year.

Use your annual allowance

One of the most important ways to save tax in the new tax year is to use your annual allowance. Your annual allowance is the maximum amount you can contribute to your pension each year before you are liable for any additional tax.

If you exceed the annual allowance, then you will be subject to an annual allowance charge. This charge is levied at your marginal rate of income tax, and so it is important to keep a record of your pension contributions each year.

You may also be able to benefit from reduced rates of National Insurance contributions if you make use of the small business ‘flat rate’ scheme. This allows certain small businesses to pay a flat rate of Class 2 NI contributions, instead of the usual Class 4 rate.

In addition, if you are self-employed, you should review your status as an employee or director so that you are able to make the most of any available tax reliefs and deductions.

Finally, you should also consider setting up a company pension scheme if you have employees. This will enable you to take advantage of employer’s contributions which are tax deductible.

By understanding the annual allowance rules and making use of them in a careful and planned manner, you can make the most of the available allowances and ensure that you pay the least amount of tax each year.

We appreciate that there’s a lot to take in, so if you’re baffled, but would like to make sure you’re working as tax-efficiently as possible, and saving for your future, we’d love to help you.

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