Every year, I swear blind I’ll fill in my tax return way before the deadline.
Every year, I leave it to the end of January, rushing to finish and panicking about the right paperwork.
So if you haven’t filed your tax return yet – I feel your pain.
One reason we were able to move to the country was that I work from home as a freelance personal finance journalist. Great that I’m not commuting to an office job, less great that I have to do a tax return.
As ever, I’m keen to make the most of my money, and that includes paying less tax where possible. Luckily, I’ve picked up various hints and tips from writing articles about tax.
With the deadline ticking down to 31 January, here are my last minute tips to cut your tax bill:
1. Save £100 by filing before 31 January
This is an easy one. Submit your tax return AND pay any tax owing before midnight on 31 January, and you’ll avoid a £100 fine.
Try to avoid leaving it to the very last minute. This isn’t an eBay auction. Don’t risk a £100 penalty if the website slows down or stops due to everyone else racing to meet the deadline.
2. Married? Claim free money
Did you know you can get money just for being married?
If you are a basic rate-taxpayer but your husband/wife/civil partner doesn’t earn enough to pay tax, run to claim the Marriage Allowance.
Everyone is allowed to earn some money every year before they start paying tax: so £11,850 for the year ending April 5, 2019 and £12,500 for the year ending April 5, 2020.
The Marriage Allowance works by transferring some of that tax-free ‘Personal Allowance’ from the person who doesn’t pay tax to the person who does.
This means the taxpayer pays less tax – to the tune of £250 for the current tax year, £238 for 2018/19, £230 for 2017/18, £220 for the 2016/17 and £212 for 2015/16.
Even better, if you’re claiming for the first time, you can go back as far as April 6, 2015 and cash out the whole £1,150. So if this applies to you, or even if it only applies for some of the years and not others, grab your National Insurance numbers and some ID like payslips or a passport, and get claiming.
Just remember that if you or your other half were born before April 6, 1935, you’re better off claiming the Married Couple’s Allowance instead.
3. Earn interest? Check it’s paid tax-free
Nowadays, you can earn up to £1,000 interest on your savings each tax year without paying a penny in tax, if you’re a basic-rate taxpayer. Even if you’re a higher-rate taxpayer, you can still earn £500 in interest tax-free.
Most banks and building societies now pay interest without tax taken off, since this ‘Personal Savings Allowance’ was introduced in April 2016.
However, it’s worth checking the tax certificates for any bank accounts. Same applies to investment platforms, if you hold any investments outside a pension or Individual Savings Account (Isa) that might pay interest instead of dividends.
Put the figures on your return, and if you’ve already paid tax where you shouldn’t, it will be taken off your tax bill.
Whatever your tax bracket, you’re also entitled to get £5,000 a year in dividends tax-free, under the Dividend Allowance. Shame it was cut to £2,000 from April 6, 2018. So if you earn dividends from investments, shelter them from tax by shovelling them over into an Isa instead. You can stash up to £20,000 every tax year in an Isa, without having to pay income tax or capital gains tax on the contents.
Find out more about allowances: How to earn £38,230 a year without paying a penny in tax
4. Work from home? Make claiming easier
This is one of my favourites. If you work from home, it can be a right pain divvying up household bills for gas, electricity, Council Tax, home insurance and mortgage interest based on how much space you use.
Instead, there’s a great quick fix which is particularly handy if you’re filing at the last minute. Claim flat rate expenses instead:
- £10 a month for working 25-50 hours a month from home
- £18 a month for 51-100 hours a month
- £26 for 101 hours or more
So a basic-rate taxpayer working from home for 25 hours a week all year could claim £120 in expenses, and shave £24 off their tax bill.
5. Use your car for work? Claim mileage
This applies if you don’t have a work car, but use your own car to do some driving for work. If you’re self-employed, you can use a flat rate for mileage instead of adding up all the actual bills for buying and running a vehicle, like insurance and repairs. Using simplified expenses, you can claim 45p a mile for the first 10,000 miles and 25p a mile after that.
If you’re an employee and claim mileage from your employer, but at a lower rate than Mileage Allowance Relief, you can claim the difference on your tax return. Get paid more generous mileage? You’ll get taxed on the extra. Just remember you can’t claim mileage for getting to your normal workplace, just driving while working.
6. Self-employed? Don’t miss out on expenses
If you’re self-employed and want to slash your tax bill, say hello to allowable expenses. Ratty old receipts? Nope. Every £1 spent could be 20p back in your pocket, if you’re a basic-rate taxpayer. The key point to remember is that you can only claim expenses that are “wholly and exclusively incurred in the performance of the business”.
For example, as I normally work from home, I can claim travel costs when I head to London for occasional business meetings, plus food and drink while I’m away. Sadly I suspect the taxman won’t look favourably on Michelin starred restaurants, but even the odd supermarket meal deal adds up.
Trouble is, it can be tricky to track down all those receipts from months ago, if you’re filing at the last minute. I’ve started using an app called 1Tap to take photos of my receipts and store them. I can also forward email receipts to it. 1Tap Receipts then magically extracts the supplier, date and amount, and even pops expenses into the self-assessment categories. OK so it got a bit confused by my Beestons bus ticket, but it’s easy to tweak the entries.
There’s also 1Tap Tax, where you can add invoices as well as receipts, and it keeps a running total estimating how much you’ll owe in tax.
By taking photos of receipts as I go along, I’m much less likely to lose them. Claiming for more expenses means a smaller tax bill – and you can even claim the cost of a 1Tap subscription! Here’s a link* if you fancy trying it.
7. High earner? Cut your tax bill by donating to charity
If you’re lucky enough to be a higher-rate or additional rate tax-payer, you can give to good causes and slash your taxes at the same time. By totting up all your charitable donations on your tax return, you can claim tax relief. This means a higher-rate taxpayer, for example, gets 25p off their tax bill for every £1 given to charity.
Track down every time you’ve sponsored a marathon run or mountain climb by logging into your accounts with the likes of Just Giving, BTMyDonate or Virgin Money Giving.
You can also claim tax relief on less obvious charitable donations, like annual membership of charities including the National Trust, English Heritage and London Zoo. Does your child go to any variety of Beavers/ Cubs/ Scouts/ Guides/ Brownies/ Rainbows? If the pack asked you to sign a Gift Aid form, you can claim tax relief on the subs too – just not individual events like Cub Camps or the Jamboree.
8. High earner? Save money when saving for retirement
I”m a big fan of paying into a pension, but sadly only pension contributions by higher and additional rate taxpayers cut their tax bills. Just like charitable donations, high earners can claim tax relief on pension contributions up to £40,000 per tax year based on the difference between basic rate tax and their tax rate.
HMRC causes a lot of confusion banging on about ‘net’ contributions, ‘gross’ contributions and ‘20% tax relief’, but I’ll cut to the chase.
When filling in your tax return:
- Ignore contributions to your employer’s pension scheme, as normally they take care of the tax side. Just include contributions to any private pension like a stakeholder pension or self-invested personal pension (SIPP).
- On the form, don’t put down the amount you personally paid in, but add an extra 25%. Paid in £1,000? Put down £1,250. This is what it means by “enter the payments and basic rate tax”. If you’re looking at paperwork from your pension provider, you want the big “total paid” figure, rather than the smaller figures for your contribution or the tax relief claimed.
Basically as a higher-rate taxpayer, for every £1 that goes out of your bank account into a private pension, you’ll cut 25p from your tax bill.
If your tax bills start to mount, consider using an accountant. You could end up saving more in tax than you pay for their help. Find accountants near you at Unbiased, or search reviews at VouchedFor.
Now, over to you. Have you already filed your tax return? Are you lucky enough to avoid a tax return altogether? Do share your top tip for cutting your tax bill in the comments.
*indicates an affiliate link, so anything you buy through it will help support the blog, as I will get a small commission at no cost to you. Many thanks!