Paying taxes is an essential obligation for both individuals and businesses in the UK. However, the UK tax system provides legal ways to minimize your tax bill through legitimate strategies. By taking advantage of available tax reliefs, allowances, and careful financial planning, you can reduce your tax liability without crossing any legal boundaries.

1. Maximize Your Personal Allowance

The personal allowance is the amount of income you can earn each year without paying tax. For the tax year 2023/2024, the personal allowance is £12,570. If your earnings fall below this threshold, you won’t pay any Income Tax. However, if you exceed this limit, there are ways to maximize your personal allowance:

• Marriage Allowance: If you are married or in a civil partnership and one partner earns less than the personal allowance, you may transfer up to £1,260 of their allowance to the higher earner, reducing their tax liability by up to £252 per year.
• Personal Savings Allowance: Basic rate taxpayers can earn up to £1,000 in savings interest without paying tax, while higher-rate taxpayers can earn up to £500. Ensure you take full advantage of this allowance to reduce the tax on your savings income.

2. Use ISA Accounts for Tax-Free Savings and Investments

Individual Savings Accounts (ISAs) are one of the best tools for tax-free saving and investing. You can invest up to £20,000 each tax year into ISAs, and all interest, dividends, and capital gains are tax-free. Types of ISAs include:

• Cash ISAs: Tax-free interest on savings.
• Stocks and Shares ISAs: Tax-free capital gains and dividends on investments.
• Lifetime ISAs (LISA): Save up to £4,000 per year for a first home or retirement, with the government adding a 25% bonus to your savings.

By maximizing your ISA allowances, you can grow your savings and investments without worrying about paying tax on the returns.

3. Claim All Available Tax Reliefs and Allowances

The UK tax system offers various tax reliefs to reduce your tax liability. Some of the most common reliefs include:

• Pension Contributions: Contributions to a personal or workplace pension scheme are tax-deductible, meaning you get Income Tax relief at your marginal tax rate. Higher-rate taxpayers can benefit from additional relief by contributing to their pension.
• Charitable Donations: Donations made through the Gift Aid scheme allow charities to reclaim 25% of the donation from HMRC. As a higher-rate taxpayer, you can claim back the difference between the basic rate and higher rate of tax on your donations.
• Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS): These schemes offer tax relief on investments in small, high-risk companies. Under the EIS, you can claim 30% Income Tax relief, while SEIS offers 50% relief.

4. Use Salary Sacrifice for Workplace Benefits

Salary sacrifice schemes allow you to give up part of your salary in exchange for non-cash benefits provided by your employer. Common salary sacrifice schemes include:

• Pension contributions: Contributing to your pension via salary sacrifice can reduce your National Insurance contributions (NICs) and increase your take-home pay.
• Cycle to Work Scheme: Purchase a bicycle through your employer and spread the cost while reducing your tax and NICs.
• Childcare Vouchers: While the Childcare Voucher Scheme is closed to new applicants, if you are already enrolled, you can use salary sacrifice to save money on childcare costs.

Using salary sacrifice can significantly reduce your tax burden by lowering your taxable income.

5. Take Advantage of Dividend Allowances

If you own shares in a company or receive dividends from a limited company, you can take advantage of the dividend allowance. As of the 2023/2024 tax year, the dividend allowance is £1,000. Dividends within this limit are tax-free, while any income above this amount is taxed at a lower rate than standard income tax:

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• 8.75% for basic rate taxpayers.
• 33.75% for higher rate taxpayers.
• 39.35% for additional rate taxpayers.

If you’re a shareholder in your own limited company, you can pay yourself dividends to minimize your Income Tax and National Insurance Contributions.

6. Opt for Limited Company Status

If you’re self-employed or running a small business, consider setting up a limited company. By incorporating your business, you can take advantage of corporation tax rates, which are typically lower than personal income tax rates. Additionally, you can:

• Pay yourself dividends to benefit from the lower dividend tax rates (as outlined above).
• Claim more business expenses to reduce your taxable profits.
• Spread income between yourself and family members who work in the business to take advantage of personal allowances and lower tax bands.

Consulting with an accountant, such as CANGAF Accountants, can help you determine whether incorporation is the right move for your business and guide you through the process.

7. Offset Capital Gains with Allowances and Losses

When you sell an asset, such as property or shares, you may be liable for Capital Gains Tax (CGT). However, there are several ways to minimize this tax:

• Annual CGT Allowance: For the 2023/2024 tax year, you can earn up to £6,000 in capital gains without paying tax.
• Spousal Transfers: If you’re married or in a civil partnership, you can transfer assets to your spouse to use their CGT allowance, effectively doubling your tax-free gains.
• Offset Capital Losses: If you’ve made losses on previous investments, you can use these to offset gains in the current or future tax years, reducing your overall CGT liability.

8. Claim Business Expenses

If you’re self-employed or run a business, you can reduce your taxable profits by claiming allowable business expenses. These expenses must be wholly and exclusively for business purposes and can include:

• Office supplies
• Travel expenses
• Utility bills for business premises
• Business insurance
• Marketing and advertising costs

Claiming all eligible business expenses ensures that you only pay tax on your net profits, not your gross income. Partnering with CANGAF Accountants can help you identify allowable expenses and streamline your tax filings.

9. Make Use of Capital Allowances

Businesses can reduce their tax liability by claiming capital allowances on assets such as equipment, machinery, and vehicles. These allowances let you deduct part of the asset’s cost from your taxable profits. There are different types of capital allowances, including:

• Annual Investment Allowance (AIA): Claim up to £1 million of qualifying capital expenditure as an immediate deduction from your profits.
• First-Year Allowance (FYA): For certain environmentally friendly or energy-saving assets, you can claim 100% of the cost in the year you purchase them.
• Writing Down Allowances (WDA): For assets that don’t qualify for AIA or FYA, you can claim a percentage of the cost each year.

By leveraging capital allowances, you can significantly reduce your corporation tax liability.

10. Work with an Accountant

Navigating the complexities of tax laws can be daunting, and without proper planning, you could miss out on valuable opportunities to reduce your tax bill. This is where a professional accountant comes in. At CANGAF Accountants, we specialize in helping individuals and businesses optimize their tax strategies while ensuring full compliance with HMRC regulations.

Our services include:

• Tax planning and advice
• Filing self-assessment tax returns
• Corporate tax management
• VAT returns
• Pension and retirement planning

By working with CANGAF Accountants, you’ll gain access to expert advice tailored to your financial situation, ensuring you make the most of every available tax-saving opportunity.

Contact CANGAF Accountants

For professional assistance with your tax planning and financial management, get in touch with us today.

CANGAF Accountants
235 Tonge Moor Road, Bolton BL2 2HR
Email: info@cangafltd.com
Phone: 01204 859315

Conclusion

Paying less tax legally in the UK is entirely possible through careful planning, understanding tax laws, and utilizing available reliefs and allowances. By maximizing your personal allowance, using ISAs, claiming tax reliefs, and working with an expert like CANGAF Accountants, you can significantly reduce your tax liability while staying compliant with HMRC. Always consult a tax professional to ensure that you’re using the best strategies for your financial situation and taking full advantage of the reliefs available to you.