Rising other tax bills when other household bills are increasing too is a subject of concern. Finding ways to cut back on your taxes is not a cinch. You should contact your accountant to know how you can reduce your tax bills. Tax planning is essential for two reasons: you can avoid the loss of unused tax allowances, and you can maintain and grow your wealth faster. In addition to income tax, you will be required to pay capital gain tax and inheritance tax.
Tax planning is necessary if you want to reduce your tax bills. Call for a meeting, discuss strategies with your financial advisor, and charted accountant. You should plan your taxes at the beginning of every financial year. The best time to use your tax allowances is the beginning of the year. This way, you can minimise the risk of taxes you pay throughout the year. Most of the allowances work on a “use it or lose it” basis. Here are the ways to whittle down your tax bills:
- Claim some of your household bills
Freelances can claim tax relief on a proportion of their household bills, including utilities and council taxes. You can use either of the following methods to figure out the money you can claim:
Method 1 – HMRC’s simplified flat rate
It includes all household bills except telephone and internet. It uses a flat rate system based on the number of hours you work each month. Your tax relief sum will increase as the number of hours increases.
| Hours of business per month | Flat rate |
| 25 to 50 | £10 |
| 51 to 100 | £18 |
| 101 and more | £26 |
For instance,
If you work 40 hours for 8 months and 60 hours for 4 months, the total amount you can claim is £152.
£10 x 8 months = £80
£18 x 4 months = £72
Method 2 – calculating the proportion of running costs allocated for your business
This method applies to those who work fewer than 25 hours. Add up all the costs and then divide it by the number of rooms. Now, you know the household bill for each room.
The next step is to find out how many hours you spend on your office work. For instance, if you work for 1 and you spend 5 hours in total in that room, work out 20% of the household bill of that room.
- Put losses to work
Investments are subject to losses. In the event of capital losses, you should sell your underperforming assets and reinvest that money in promising assets. It will allow you to offset the losses. You can claim up to £3,000 of losses if they are greater than your capital gains.
You can even carry forward those losses to the year when you expect our taxes to be quite higher. However, you cannot repurchase similar assets within a month after the sale of your underperforming assets to avoid nullifying the loss. You will need to complete additional documentation if the losses include shares of privately held companies as well. Do not wait until the end of the year to plan your taxes. Talk to your accountant and tax consultant immediately.
- Side gig workers can claim up to £1,000
You can make £1,000 every year by selling old items on eBay and using your property without worrying about taxes. You can even claim up to £1,600 if both you and your partner pay income tax at 40%. People who earn over £1,000 from their side gigs can claim their actual expenses the same way as the self-employed do. There is a lot of information on the internet about efficient tax planning as a freelance. Consult your accountant and tax consultant for a better piece of advice.
- Cover healthcare costs efficiently
There are two healthcare savings plans – HSAs and FSAs. Both plans are aimed at setting aside tax deductible amounts to pay for your medical expenses that your insurance cannot cover. You will have to meet certain conditions. For instance, your insurance plan must be high-deductible, and you should not own additional medical coverage. Otherwise, you will lose the benefits. In other words, you cannot contribute to both accounts together. Other key features include:
- Unlike FSA, you do not need to spend the whole of the money of your HSA.
- Despite depositing funds into your HAS, you will receive a tax deduction.
- Health FSA contributions are exclusively meant for full-time employees.
Before choosing a healthcare plan for yourself or your staff, you should determine how you can save money on taxes. Your accountant can help you come up with the best strategy. With tax deductions, you can avoid relying on small loans without credit checks to cover your medical expenses.
- Contribute to your pension
Having an individual retirement account will help you claim tax relief. Contributing £80 to your pension account will help you receive £20 from the government. Using it as tax relief will help grow your pension. Those who are paying higher taxes at a rate of 40% or more are eligible for additional relief. If you live in Scotland, you will get even extra tax relief.
- Take advantage of interest payments and charity
Donating your money to registered charities can help you get relief from tax payments. Considering the average profitability of your business, you can discuss with your accountant the ways to make the most of charity. The interest you pay on your loans is also tax deductible. These loans include business loans and bridging loans in the UK.
- Claim allowances
Utilise your individual savings account allowance every year. It will protect your investments from income tax and capital gain tax. This is how you can grow your wealth more efficiently. Married couples are eligible for marriage tax allowance. You can transfer a portion of your allowance to your partner. It results in tax savings when one of you earns less than the personal allowance threshold.
A mileage allowance can also be offset from your profits, provided you use a vehicle only for business expenses. Keep tabs on your business mileage and claim the accurate allowance.
The bottom line
Claiming taxes will help grow your profits. However, you will have to plan around taxes from the beginning of the financial year. Your accounts can discuss strategies with you to help retain more profits. You should also keep your ear to the ground so you know the latest tax amendments and their implications.
