When things are tight, the balance between what comes in and what comes out of your bank account is crucial. And while workers don't always think about it, a huge amount of money is taken from our pay packets every month in tax.
The amount of tax we pay has been thrown centre stage as the cost of living crisis hits, with more financial pressures to come in April. National Insurance rises, and soaring inflation and petrol prices is combining with huge increases in gas and electricity bills.
The Government has taken action to help households with a £150 council tax rebate, a £200 'loan' to help with gas bills, and lifting the national insurance threshold. But millions of people are going to find the coming months a struggle.
And as people look at their incomings and outgoings, it's worth checking you are only paying the right amount of tax. And to see if you could actually be paying less.
Below, expert at Which? explain some of the ways you could reduce your tax bill.
Income Tax
Check your tax code
You can find this on your payslip and it shows how much tax HMRC will take from your salary. It's a good idea to check this every year, or after changing jobs, to make sure it is correct. If you're on the wrong code, you may be entitled to pay less tax in coming months, or receive a refund for previous years.
Claim tax credits
These provide extra money to those looking after children, disabled workers and other workers on low incomes. The two main types you can claim: working tax credits and child tax credits.
You can't claim tax credits if you already receive Universal Credit.
Pay into a pension scheme
Contributions to your employer's pension scheme (including any additional voluntary contributions you make) can be made from your gross pay, before any tax is charged. The government will top up your pension with tax relief, giving you a free bonus for saving for retirement.
Benefit from marriage allowance
Marriage allowance is a tax perk that benefits couples where one partner earns less than the personal allowance. If you're married or in a civil partnership, you can transfer any unused personal allowance from the lower-earning partner to the higher earner.
Up to £1,260 can be transferred in 2021-22, potentially saving you up to £250. To qualify, the higher earner must be a basic-rate taxpayer.
Meet the tax return deadline
If you're one of the 12m people who need to submit a self-assessment tax return, make sure you don't miss the deadline - it's a costly and easily avoided mistake. Miss the deadline and there's an automatic £100 fine - even if you don't owe any tax.
Reclaim overpaid taxes
If you are a non-taxpayer, or your income unexpected falls during a year, you may find that you've been taxed more than you should have done, as HMRC assumes your personal allowance is equally used each month. To reclaim, fill out form R40 from HMRC, or call them.
Get a season ticket loan
Some employers will offer you a tax-free loan to buy your season ticket, potentially saving you hundreds on travel costs. Ask your employer if they're part of the scheme.
Claim tax-free childcare
Under the tax-free childcare scheme, you can claim back 25% of your childcare costs, up to £500 every three months. You'll have to meet set criteria, including having a child under 11 and earning less than £100,000.
Alternatively, your employer may be will to start up a salary sacrifice childcare scheme. These are easy to establish and can result in substantial savings for both employees and employers.
Get a company car
If you are entitled to a company car, consider whether it would be more tax-efficient to take a cash equivalent in pay instead.
Switch to a low-emission car
If you are changing your company car, consider a low-emissions model . These are now taxed at a lower percentage of their list price than cars with a high CO2 rating.
Savings
Maximise your personal savings allowance
In 2021-22, you can earn £1,000 of interest on savings tax-free if you're a basic-rate taxpayer. If you're a higher-rate taxpayer, your tax-free allowance is £500.
You'll only pay tax on savings income that exceeds this threshold. This will no longer be deducted automatically by the savings provider. If tax is due, you'll need to pay it via self-assessment or have it deducted via PAYE. Keep in mind that you won't have a savings allowance as an additional-rate (45%) taxpayer.
Make the most of your Isa allowance
Everyone can take advantage of their annual tax-free Isa allowance. For the 2021-22 tax year, you can deposit up to £20,000 into Isa accounts. This is unchanged from 2020-21. This can all be put in a cash Isa, a stocks and shares Isa, or split between both cash and stocks and shares.
Pay less tax if you're self-employed
Tax-deductible expenses
Many expenses incurred while running your business can be deducted from your profits, reducing your overall tax. This could include things like fuel, phone costs, or running costs for your home office.
Self-employed car costs
You can generally claim the running costs of a car you use for business (though not the cost of buying one). If you use the same car in your private life, you can claim a proportion of the total costs.
To do this, you'll need to either add up all of your motor expenses for the year and work out the percentage of business miles you did, or you can claim a fixed rate mileage allowance for business travel.
Cash-flow boost for self-employed
As a business owner, you can choose when your accounting year ends - and it's worth choosing carefully.
If you pick an accounting year-end date earlier in the tax year, you'll have more time to pay tax on your profits. This means that as your profits increase, your tax bill will rise more slowly. The more time you have, the less likely you'll struggle to pay your tax bill on time.
Annual losses
If you make a loss in one tax year, you can carry it forward and offset it against profits from a more successful year. This decreases your taxable income.
Transfer assets to your spouse
You won't be charged capital gains tax if you transfer assets to your spouse or civil partner - and a lower-earning spouse may pay more favourable income tax rates. So, it may be worth transferring savings and investments to your husband, wife or civil partner if they pay a lower rate of tax than you do.
Junior Isas
When making gifts to your own children, you can avoid paying tax on the interest by paying into a junior Isa. The annual allowance for Junior Isas is £9,000 in 2021-22.
Save on property income tax
Use the Rent-a-Room relief
The Rent-a-Room scheme allows you receive up to £7,500 in rent each year from a lodger, tax-free. This only applies if you rent out furnished accommodation in your own home, and you'll need to live in the property as well.
If two people who share a property take advantage of the scheme, they can only claim £3,750 each. This is reduced proportionally according to the number of people owning the home.
Landlord's expenses
If you rent out property, you can deduct a range of costs from your taxable income.
These include the wages of gardeners and cleaners, letting-agency fees, ground rents and service charges, accountant's fees and landlord insurance.
Landlord's replacement of domestic items
Landlords can claim tax relief on money spent to replace 'domestic items' in their furnished rental properties. The types of items you can claim relief on include beds, carpets, crockery or cutlery, sofas, curtains, fridges and other white goods.
But this only applies to items being replaced - not those bought for a property for the first time. You can also only claim the amount for a like-for-like replacement.
Tax relief on your buy-to-let mortgage
When you take out a mortgage to buy a rental property, you can claim a 20 per cent tax credit on mortgage interest.
Tax savings for older people
National Insurance
You won't need to keep making National Insurance contributions if you carry on working beyond state retirement age (currently 65). So make sure your employer is aware of this and adjusts your pay.
Cut a future inheritance tax bill with gifts
Gifts aren't counted towards your inheritance-tax bill if you live for a further seven years after making them. Known as potentially exempt transfers (PETs), a gift from your estate can reduce your bill significantly.
What's more, you can give away up to £3,000 each year without ever having to worry about the potential tax, as well as multiple smaller gifts of £250, providing they don't go to the same person.
