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52 Ways to Save Tax #32

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Pay less tax

There are dozens of jobs across the UK that require you to wear a certain type of clothing or a uniform.

Many people don’t realise that it is possible to deduct the cost of your work clothing/uniform from your tax bill, reducing the amount of tax that you pay. For example, if you’re  prison officer you can claim £80 a year.

In the latest part of our “52 Ways to Save Tax” series, we look at how you pay less tax by claiming for the cost of your work clothing.

52 Ways to Save Tax – Part 32: Claim back the cost of your work clothes

Many professions require you to wear particular clothing or a uniform. Under the current rules, you may be able to claim tax relief from HM Revenue and Customs on the cost of cleaning, repairing or repairing specialist clothing.

Remember that you can’t claim tax relief on the initial cost of buying clothing for work.

You can claim:

  • The amount that you spent – for which you will need receipts as evidence
  • A ‘flat rate deduction’, agreed by HMRC – no receipts/evidence is needed

Flat rate deductions are the amounts that HMRC have agreed people in certain professions can claim every year, and they are based on what HRMC believes people typically spend.

These flat rate deductions are typically between £60 and £140 per year, depending on your occupation. A list of occupations is published by HMRC (find it here). If your occupation isn’t listed then you could still claim a standard annual amount of £60.

Some examples of the amount of tax relief you can claim

HMRC has published a list of the flat rate deductions that certain professions are able to claim every year. The amount varies from job to job, but some examples of the amount of tax relief that you can claim each year include:

  • Joiners and carpenters – £140
  • Stone masons – £120
  • Blacksmiths – £140
  • Motor mechanics in garage repair shop – £120
  • All food workers – £60
  • Glass workers – £80
  • Nurses and midwives – £125
  • Hospital porters and ward clerks – £125
  • Police officers – £140
  • Uniformed prison officers – £80
  • Dockers – £80
  • All quarry workers – £100
  • Carpenters and cabinet makers – £140

There are a number of other professions in the list – check here to see if you can claim tax relief on the cost of your work clothing. Remember that you could still claim an annual amount of £60 even if your profession isn’t listed.

52 Ways To Save Tax #31

Pay less taxEven if you have taken all the steps possible to reduce the amount of tax that you pay, you could still end up paying too much. If you have overpaid, there are ways in which you can obtain a tax rebate and get back the money that is due to you.

In the latest part of our “52 Ways to Save Tax” series, we look at how you pay less tax by claiming back overpaid money that you’re owed.

52 Ways to Save Tax – Part 31: Claim back the tax you have overpaid

There are a number of reasons why you might have paid too much tax. These include:

  • Your employer has deducted too much tax from your pay
  • You are on a low income and you have paid tax on savings interest
  • You sent a tax return and have paid too much tax
  • You have used your own money for your job (for example on work clothing or fuel)
  • You live in one country and have an income in another
  • You were on the wrong tax code for part of the tax year

Claiming back overpaid tax if you’re on PAYE

If too much tax was taken from your PAYE income, you may be able to claim a refund. How you make a claim depends on the tax year in which you paid too much tax. You can make a claim for a tax rebate back to the 2013/14 tax year.

  • 2017/18 tax year – Tell HMRC if your tax code is wrong. If you are due a tax refund, your employer will give you this in your pay.
  • 2016/17 tax year – HMRC will post you a P800 tax calculation if they know you have paid too much tax. You can either claim your refund online or you may receive a cheque.
  • 2015/16 and earlier tax years – You may be able to claim online. You will need your employer’s PAYE number (this is on your P60) and details of any table income/benefits you received.

Claiming back overpaid tax if you sent a tax return

If you submit a tax return, you may still have paid too much tax. You may have:

  • Entered the wrong amount when you paid your tax bill
  • Made a chance to your tax return after you submitted it
  • Stopped being self-employed and have payments on account

If you submitted your tax return online you should log into your HMRC account and ‘request a repayment’ of the tax you have overpaid.

If you submitted a paper tax return, you should call or write to HMRC and explain why you think you paid too much tax. Include your Unique Taxpayer Reference when you write, and you may also need your bank details in order that your tax rebate can be paid directly into your UK bank account.

Tax Fix can help you get the tax rebate that you are owed. Get in touch with us today to find out how we can help.

52 Ways to Save Tax #30

Pay less tax

Pay less tax

Childcare vouchers allow you to pay for your childcare from your pre-tax salary. If you pay for childcare, you could save hundreds of pounds a year by using the voucher scheme.

In the latest part of our “52 Ways to Save Tax” guide, we look at how you reduce the amount of tax that you pay by using childcare vouchers.

52 Ways to Save Tax – Part 30: Use childcare vouchers

If you have children aged up to 15, you could save over £1,000 each year by using childcare vouchers. While they are only available through employers, they let you pay for childcare out of your pre-tax and National Insurance (NI) income.

This may not sound like a big deal, but it could save you hundreds of pounds.

The process works on ‘salary sacrifice’. Here’s an example:

  • You give up £1,000 of salary which, after tax and National Insurance is only worth around £700 to you if you’re a basic rate tax payer
  • In return for giving up £1,000 of salary, you get £1,000 worth of childcare vouchers
  • By taking the vouchers you are £300 better off

If you’re a basic rate taxpayer, you can pay for up to £243 of childcare each month with vouchers (£55 per week). This is per parent, and so if you are both working you can get £486 of childcare vouchers each month.

The limit to the amount of vouchers you can buy is:

  • Basic rate (20%) taxpayer – £55/week, maximum annual tax/NI saving £930
  • Higher rate (40%) taxpayer – £28/week, maximum annual tax/NI saving £630
  • Top rate (45%) taxpayer – £25/week, maximum annual tax/NI saving £590

Remember that these limits are per parent. And, the number of children you have doesn’t affect the amount of childcare vouchers that you can buy. If the vouchers don’t cover the cost of childcare, you pay the childminder directly for the difference.

Vouchers are typically non-refundable, so don’t buy more than you need. However, they do normally last for a long time and so you can save them up to use during holiday times when the cost of childcare may be greater. Many providers will also allow you to backdate vouchers although your child must be born for you to be able to sign up.

You can use vouchers to pay for childcare up to 1 September after your child’s 15th birthday (16th birthday if they are disabled). The vouchers can be used at any nursery, nanny, childminder or playgroup who is Ofsted registered.

You can also use vouchers to pay for tuition for your child, as the tutor is providing ‘childcare’ at the same time. The tutor must be Ofsted registered and happy to accept vouchers.

52 Ways to Save Tax #27

pay less taxAccording to HMRC, there are more than 1.75 million landlords in the UK banking over £14 billion a year in rental income.

If you’re a landlord, then you will have a number of potential tax liabilities on your rental property. In the latest part of our “52 Ways to Save Tax” guide, we look at how you reduce the amount of income you can pay on your buy to let investment.

52 Ways to Save Tax – Part 26: Claim all the expenses on your ‘buy to let’ property

The income that you receive as rent on investment property is taxable. Unless you are set up as a company, you have to declare any rent that you receive as part of your Self Assessment tax return. The tax is then charged in accordance with your own income tax band:

  • 20 per cent for basic rate taxpayers
  • 40 per cent for higher rate taxpayers
  • 45 per cent for additional rate taxpayers

Bear in mind that adding your rental income to your other earnings may push you into a higher tax band.

You can reduce the amount of tax that you pay by deduction certain allowable expenses from your rental income. These expenses include:

  • Council tax and ground rent
  • Buildings insurance on the property
  • Property repairs and maintenance (although large improvements such as an extension are not income tax deductible)
  • Legal, management and lettings agency fees
  • Other related property expenses
  • Interest on buy to let mortgages (see below)

In 2015, the Government reduced the amount of interest tax relief on buy to let mortgages. These changes come into force in April 2017. Prior to April 2017, tax is payable on your net rental income after deducting allowable expenses including mortgage interest. If you pay higher or additional rate tax you can claim tax relief at your highest rate.

However, from April 2020 tax relief can only be reclaimed at the basic rate, whatever rate of tax you pay. These rules are being phased in over 4 years beginning in April 2017.

Reducing the amount of Capital Gains Tax that you pay

If you sell a buy to let property for more than you paid for it then you may be liable for Capital Gains Tax (CGT).

As well as reducing the amount of tax you pay on your rental income, you can also reduce the amount of Capital Gains Tax you pay when you sell the property. Legitimate ways to reduce your CGT bill include:

  • Using your full CGT annual allowance (£11,100 in 2016/17)
  • Carrying over a loss made on the sale of a buy to let property in previous years
  • Deducting solicitors fees
  • Deducting estate agents fees
  • Deducting the costs of advertising the property for sale
  • Deducting stamp duty
  • Deducting any expenditure on ‘capital’ items

There are also certain tax reliefs available. For example if the property was previously your main residence, the gain may be reduced.

52 Ways to Save Tax #26

pay less taxIf you’re a business owner, looking after your best staff is one of your key challenges.  So, if you want to be seen as a great company to work for, have you considered introducing employee benefits?

Setting up a range of employee benefits don’t just make you an attractive employer; they could also save you money by reducing the amount of tax that you have to pay. In the latest part of our “52 Ways to Save Tax” guide, we look at the tax savings you can make through introducing employee benefits.

52 Ways to Save Tax – Part 26: Set up a ‘salary sacrifice’ scheme

Under a ‘salary sacrifice’ scheme, an employee chooses to receive a form of non-cash benefit in return for giving up some of their pay. They essentially reduce their salary by taking some of their remuneration in the form of another designated benefit.

Here’s an example. If you have an employee who earns £25,000 a year, they could agree to change their contract to receive a salary of £23,800 and 12 Childcare Vouchers a year, each worth £100.

The benefit of this to an employer is that you can save up to 13.8 per cent in National Insurance contributions on any such deductions made from employee’s salaries.

Bear in mind that an employee can only take advantage of a ‘salary sacrifice’ scheme if their pay does not fall below the Minimum Wage once the deductions have been made.

There are a number of benefits that can be used in a ‘salary sacrifice’ scheme. Keep reading to find out more.

Childcare Vouchers

Childcare Vouchers have been around since 1997 and help over half a million working parents every year. The vouchers can be used to pay for all registered childcare for children up to the September following their 15th birthday.

One of the huge advantages of the scheme is that they benefit both employees and the employer:

  • Employees – childcare vouchers are non-taxable and exempt from National Insurance. The employee saves money as they only pay tax and NI on the remainder of their salary after the value of the vouchers have been deducted. Employees can sacrifice up to £55 per week from their salary
  • Employers – save money as they don’t pay up to 13.8 per cent National Insurance

Mobile Phones

If you choose to pay for a mobile phone for your employee’s personal use, there are tax savings to be made. Under the scheme, you can provide a handset and you can save up to 13.8 per cent National Contributions on the employee’s monthly deduction.

The employee also saves as they make tax and NI savings on their bill.

“Cycle to Work”

The ‘cycle to work’ scheme saves employees hundreds of pounds on retail prices for bicycles and tax savings for the employer.

Under the scheme, a bicycle is paid for under a hire agreement paid for by a ‘salary sacrifice’ arrangement (usually over 12/18 months). After the agreed period, the ownership of the bike is transferred to the employee.

Employers save up to 13.8 per cent on National Insurance contributions for every employee on the scheme.

The scheme also sends a great message to your employees that you’re a forward-thinking company concerned about the environment and the health of your workers. Cycling to work has also been shown to reduce sickness absence.

52 Ways to Save Tax #25

calculator-and-notes-2For years, pensions have been one of the most tax efficient ways to save. Unlike savings and investments such as PEPs, TESSAs and ISAs, pensions not only provide favourable tax treatment once your money is in the account, but also help you cut your income tax bill.

In the latest part of our “52 Ways to Save Tax” guide, we look at the income tax savings you can make through pensions. Keep reading to learn more.

52 Ways to Save Tax – Part 25: Cut your income tax by saving into a pension

If you want to save for your retirement and simultaneously reduce your current income tax bill, you can consider paying into a pension.

Pension contributions that you make receive tax relief at your marginal tax rate. So if you’re a higher rate taxpayer and you pay £8,000 into a pension, you will have a further £2,000 credited to your pension by HMRC. You can then reclaim an additional £2,000 through the self-assessment process, as long as you pay tax at the higher rate on at least £10,000 of your income.

In simple terms, you end up with £10,000 in your pension for a contribution of just £6,000.

Currently, the maximum amount of tax-relieved pension contributions that you can make is £40,000 per year or your annual earnings, whichever is lower. This is your Annual Allowance and it includes any contributions you make to other pension schemes and any contributions that other people make for your benefit (for example your employer).

You may be able to roll forward unused contributions from the past three tax years.

Bear in mind that your total gross contribution can’t be higher than your pre-tax income. However, if you don’t have any taxable income you can still pay up to £2,880 into a pension, and this will be grossed up to £3,600.

Factors you should bear in mind when contributing to a pension

While paying into a pension offers significant tax benefits, there are some factors that you should bear in mind.

Firstly, you need to remember that once you make a contribution to a pension, the investment is locked away until you reach the age of 55 (or age 57 from 2028).You can’t normally cash in a pension until you reach pensionable age – and this may have risen even further by the time you come to retire.

Accessing your pension fund when you retire may also mean that you have to take part or all of your savings as income, rather than as a cash lump sum.

In addition, it’s worth taking into account that the level and basis of tax can change. Pension rules are frequently changed and so contribution limits or the tax treatment of pensions could change in the future. In addition, the value of tax relief and tax-efficient accounts depends on your personal circumstances.

52 Ways To Save Tax #24

save taxBack in 2010, the Chancellor changed the personal allowance rules for anyone earning more than £100,000 per year.

For every £2 that you now earn above the £100,000 threshold, £1 of your personal allowance is removed. This means that high earners face an additional tax rate of 20 per cent on up to £22,000 of their income.

Keep reading to learn more and to find out how you can avoid this additional tax bill.

52 Ways to Save Tax – Part 24: Don’t earn over £100,000

For every £2 of income that you earn over £100,000 you will lose £1 of your personal allowance. Your personal allowance is zero if your income is £122,000 or above (tax year 2016/17).

If you earn £122,000 you will lose all of your £11,000 personal allowance. £11,000 of your income will then be taxed at 20 per cent and the £22,000 will have been taxed at 40 per cent. It all means that your marginal rate of tax on this portion of your income is a huge 60 per cent.

Dermot Callinan, UK Head of Client Advisory at KPMG, says: “It makes what its otherwise a progressive income tax system regressive.”

As wages go up, more and more taxpayers are falling into this trap. Estimates suggest that more than a million taxpayers will lose some or all of their personal allowance by 2018/2019.

Patricia Mock, a tax director at Deloitte, points out that as the personal allowance has risen since 2010 (from £6,475 to £11,000) the band of income on which this 60 per cent effective rate is paid has widened.

What you can do if you earn just over £100,000

To avoid paying an effective rate of 60 per cent on a small portion of your income, there are some steps you can take.

Firstly, you can top up your pension. By making an increased pension contribution you can reduce your ‘adjusted net income’ to under £100,000. You can use unused annual allowances going back three tax years to increase the amount you wish to contribute if you need to.

Ms Mock from Deloitte adds: “If you fall into the relevant income bracket, then sheltering your income by making a large pension contribution is a very practical way forward.”

Another way that you can reduce your adjusted net income is to make a charitable donation. Charitable donations are deducted from your income and can help you to bring your earnings below the £100,000 threshold.

Both these options will help you to cut your earnings to under £100,000 and you will avoid paying a marginal tax rate of 60 per cent on up to £22,000 of your income.

52 Ways To Save Tax #23

pay less taxDo your spouse or your children work for you? If they do, you could be paying them for the work they do and, in turn, reducing the profits of your business and the tax that you pay.

Employing your spouse or your children is particularly important where you are paying higher rate tax or if your spouse or child earns less than the current personal allowance. You may be able to reduce the tax that you pay by splitting your profits, earnings, or dividend income with your family member. Keep reading to learn more.

52 Ways to Save Tax – Part 23: Pay your spouse or children for work

If your spouse works in your business you can legitimately pay them a salary and contribute to a pension fund. A business partnership with your spouse can enable you to share trading income with them and your limited company can pay dividends to them if you each own some of the shares in the business.

Whilst there can be significant tax advantages to enjoy if you share your income with your spouse – particularly if they earn less than the personal allowance or you are a higher rate taxpayer – good professional advice is still recommended in order to minimise the risk of a challenge by HMRC.

Here are some tips to help you:

  • Payment must be for work actually done – you should draw up a list of your spouse’s responsibilities and keep a record of what they actually do. It is reasonable to pay them a salary commensurate with what it is they actually do, and you can base this on the ‘going rate’ for that work (the National Living Wage is a start).
  • The amount must actually be paid – you can’t simply ask your accountant to put the payment through your books at the end of the tax year. You need to actually make the payment, ideally through the bank so it is easy to prove.
  • Comply with PAYE procedures – you should get a P46 signed and complete the end of year PAYE forms as you would for any other member of staff. It may also help keep up their National Insurance contribution record even if they don’t pay any National Insurance on the salary.

By paying your spouse you can utilise their personal allowance and reduce your business profits, thereby reducing the amount of tax that you have to pay. You may also be able to do this if your children work for you, as we see next.

Employing your children in your business

Children under the minimum school leaving age can also be employed by your business for work that they do.

Bear in mind that children can only work a limited number of hours per week and the number of hours they can work is sometimes determined by the nature of the job (longer hours in occupations such as theatre and more restricted hours in areas such as bar work).

During term time children (from the age of 13) may work a maximum of 12 hours per week. During school holidays 13 to 14 year olds may work a maximum of 25 hours per week. 15 to 16 year olds may work a maximum of 35 hours per week.

Again, you should keep records of the work your children actually do for you. You should also pay them in the proper way (ideally through the bank).

52 Ways To Save Tax #22

Pound coins pileIf you are a business that pays income or corporation tax, you are able to claim capital allowances on energy-efficient plant and machinery. The Energy Technology Product List (ETL) is a government-managed list of energy efficient equipment and if you buy items on the ETL you can claims a 1000% first year capital allowance.

Investing in energy efficient equipment can reduce your energy bills and save you money in the medium/long term and you can also save tax on the purchase. Keep reading to learn more.

52 Ways to Save Tax – Part 22: Buy energy efficient equipment

The ETL is part of the Enhanced Capital Allowance (ECA) scheme for business. This means that if you are company that pays income or corporation tax, you can claim 100% first year capital allowances on products that feature on the list.

As part of its commitment to reduce carbon dioxide emissions, the government offers incentives to businesses to reduce their energy consumption. The Enhanced Capital Allowance (ECA) lets you claim 100% of your investment in energy efficient equipment against your taxable profits in the year that you buy the equipment.

What equipment is eligible for the tax saving?

For a product to be on the ETL, it must meet specific energy saving or energy efficiency criteria. These criteria are specific to the type of product.

Equipment that is included on the ETL includes:

  • Boiler equipment
  • Combined heat and power
  • Compressed air equipment
  • Heat pumps
  • Heating, ventilation and air-conditioning equipment
  • High speed hand air dryers
  • Lighting
  • Motors and drives
  • Pipework insulation
  • Refrigeration equipment
  • Solar thermal systems
  • Uninterruptible power supplies
  • Warm air and radiant heaters
  • Waste heat to electricity conversion equipment

How does the Enhanced Capital Allowance (ECA) scheme work?

The ECA scheme means that your business can invest in energy-saving plant or machinery that might otherwise be too expensive.

Under the ECA, your business can use the allowance to set 100% of the cost of the assets against your taxable profits in the tax year you buy them. This means that your company can write off the cost of the new energy efficient equipment against your taxable profits in that financial year.

An ECA is claimed through your business’s income or corporation tax return in the same way as any other capital allowance. HM Revenue and Customs is responsible for the tax-related aspects of the ECA scheme.

You can find more information about the range of energy efficient equipment that features on the ETL here. There is also a search function where you can find products that feature on the ETL and are therefore eligible for this tax-saving scheme.

Does claiming a tax rebate affect your eligibility to come back to the UK?

Tax rebate work in the UK

Does claiming a tax rebate affect your eligibility to come back to the UK?

There are a number of reasons why you may be able to claim a UK tax rebate. You may have had too much tax taken from your pay. You may have stopped work part way through a tax year. Or, you may have paid too much tax having completed a tax return.

A common reason for claiming a tax rebate is if you have worked in the UK for part of a tax year, and then you spend the rest of the year living and working in another country.

Our guide looks at claiming a tax rebate if you live abroad, and whether it affects your eligibility to come back to the UK.

If you leave the UK you may be able to claim a tax rebate

If you have worked for part of the tax year in the UK and then you leave then you may be able to claim a tax refund.

Your income is likely to have been taxed assuming that you were going to be working in the UK for the whole tax year. Your tax code is likely to have been such that your tax-free allowances were spread over a 12 month period. So, if you work part of the year in the UK and then head overseas, you may be eligible to get some of the tax you have paid in the UK back.

Claiming a tax rebate does not automatically affect your eligibility to return to the UK

It is important to note that claiming a tax rebate does not affect your eligibility to return to the UK. Just because you have claimed some tax back does not mean that you are prevented from returning to live and work in the UK – either in the same tax year or in a different tax year.

You should always check your visa and rights of residence in the UK. These are separate to your tax affairs and determine whether you are allowed to legally live and work in the UK.

Returning to the UK in the same tax year

If you were to return to the UK in the same tax year that you left (even if you had claimed a tax rebate) you would once again start to pay tax on any earnings. You would be given a tax code and tax would be deducted.

Even if you have claimed a tax rebate for that tax year, your eligibility to return would not be affected. Any underpayment or overpayment could be calculated at the end of the tax year and you will either receive a tax bill or a tax rebate, depending on whether you have paid too much or too little tax.