The cost of living crisis in the UK is growing exponentially. Households are facing high inflation, rising interest rates as well as skyrocketing bills. As such, many are now looking towards ways in which they can save money.
An efficient way to do so is to first try to make savings on your taxes. There are several ways in which this can be done legally – for both employees and the self-employed.
This article will outline 5 top tips which can help households in making savings where possible concerning their taxes.
Table of Contents
Make sure to check tax codes
This is particularly applicable to those who pay tax via Pay As You Earn. In some instances, the incorrect tax code can mean that they will be paying more taxes than they are required to do.
If one does discover that they are assigned to the incorrect tax code, they may be entitled to receive a rebate from the HMRC, or pay less tax in the upcoming months.
Incorrect tax codes may be assigned in emergencies. For instance, if a worker has started a new job and their new employer does not have a P45. Other instances where this might happen include changes in salary or changes in their state benefits.
Employees should ensure to check their tax codes annually, and even more frequently if they have just changed their job or salary, to ensure that it is correct and that they are not overpaying.
Make use of paying into pension schemes
Pensions allow employees to contribute towards their employer’s chosen pension scheme from their gross pay. This is taken before any taxes are charged.
The UK Government then tops up their pension contributions with tax relief. For example, if one contributed £100 to their pension, this would in theory be taxed by 20%, making it £80. Instead, pension payments are paid into the fund without any tax deductions, so it will still be worth £100.
Do not miss the tax return deadline
The tax return deadline refers to any money owed to the HMRC in taxes. Around 10 million people in the UK are required to submit a self-assessment tax return annually.
Those making online submissions have a deadline of 31st January 2023. For those who have chosen to make paper submissions, the deadline for their 2021-2022 tax year is 31st October 2022.
Missing the tax return deadline incurs an automatic fine of £100.
Make sure to claim tax-free childcare
The UK Government provides workers with a tax-free childcare scheme. This scheme allows parents to claim back 25% of their childcare costs up to £500 every three months.
The scheme applies to those who are eligible. The criteria includes having a child under the age of 11 and earning less than £100,000.
The scheme thus allows households to make savings every three months on their childcare costs.
Make sure to claim back any overpaid taxes
This applies to those who do not pay taxes at all, or who have experienced an unexpected drop in their income. In these instances, these groups may actually be taxed more than necessary as the HMRC will assume that their personal allowance is the same each month.
If this may be the case, those who believe that they are overpaying in taxes should fill out the HMRC’s H40 form.
