Phew, it has been a long hard slog but we have finally made it. What you may ask. Well, all that hard earned money is now yours to spend as you wish because Tax Freedom Day, the day when Britain stops working to pay their taxes and start earning for themselves has now been and gone.
Although that momentous day was 12th June, this got me thinking about how we can manage our pay and tax to our benefit rather than the tax man’s? Well here are my top tips.
Although the days of Salary Sacrifice may be numbered, the Chancellor announced a review of these arrangements in the budget, the benefits are significant and should be explored. Pension contributions, child care and cycle to work schemes all come with the added advantage of immediate tax relief and employee’s national insurance relief. For basic rate tax payers this works out at 32%. For example a pension contribution through a salary sacrifice arrangement of £1000, only cost £680 – a bargain
We all have them, however an employer-provided mobile telephone, used privately, does not attract a benefit in kind and the employer can offset the cost of the phones against their profit. A win, win situation. Savings for the employee will be £200-£300 depending on the plan taken, with the employer getting a deduction in their accounts of the same amount.
Why have I included tax codes as a suggestion that we can pay less tax, because HMRC don’t get tax codes wrong do they? Well think again. A simple check of your tax code, particularly if you have benefits in kind, can save hundreds of pounds in tax and ensure that errors in tax codes do not go on from year to year. It therefore pays for you to understand your tax code and what HMRC deduct from your personal allowances.
Working from Home
Do you work from home? If so you can claim a tax deduction to cover part of home running costs. HMRC currently allow £4 per week without asking for any evidence. Not a large amount, but nevertheless available
Tax Returns and Payments
It seems pretty obvious to say so, but if you have to submit tax returns to HMRC and pay tax and national insurance through Self- Assessment, ensure you are not late. Although HMRC only charge 3% interest on late paid tax, if payment is 30 days late a penalty of 5% of the outstanding tax is charged. Keeping hold of your money for 6 months will ensure a further 5% penalty.
Submitting a tax return a day late will set you back £100. Having got to Tax Freedom day, don’t prolong the agony by paying interest or penalties.