Ten easy ways to cut your tax bill

National insurance contributions went up in April 2022 in order to pay for health and social care.

If you’re worried about rising taxes, particularly during a time when other household bills are increasing too, there are some perfectly legitimate ways you can cut the amount of tax you pay.

These tax perks can save you hundreds or thousands of pounds, but there is often a huge lack of awareness about them which is why we have outlined them in this article:

Want to know your take-home pay? Try our free income tax calculator

1. Slash £100s by claiming on travel

Unfortunately I can’t make your commute more palatable by suggesting you can claim it as a legitimate business expense.

But you can claim for travel if:

• Your place of work isn’t permanent
• Or you work from home and need to travel to your clients

If you have driven 11,000 business miles in your company car over the tax year, it would work out like this:

• 10,000 miles x 45p = £4,500
• 1,000 miles x 25p = £250
• Total you can claim = £4,750

2. You can claim on some of your household bills

Homeworkers are able to claim tax relief on a proportion of their household bills, including utilities, insurance and council tax.

Exactly how much tax relief you get can be worked out in two ways:

Method 1

The first is HMRC’s simplified flat rate, which is the less-time consuming option. It includes all household bills, except telephone and internet which you work out separately.

The amount of tax relief you can claim increases with the hours per month that you work from home.

If you worked from home fewer than 25 hours in a month then you can’t use the simplified tax rate.

Here’s the amount of tax relief you can claim depending on your work from home hours:

Hours of business use per month	Flat rate per month
25 to 50	£10
51 to 100	£18
101 and more	£26

For example, if you worked 40 hours from home a month for nine months, 60 hours for two months and a whopping 110 hours in one month, this is how it works out:

9 months x £10 = £90
2 months x £18 = £36
1 month x £26 = £26
Total you can claim = £152

Method 2

The second method requires you to work out all the running costs of your home and calculate what proportion is used for business.

If you work fewer than 25 hours a month at home, you have to use this method.

For example:

• If your house has eight rooms and you use one as an office for, on average, 45 minutes a day (about 3% of the time)
• To calculate the amount you can claim tax relief, you tot up all the allowable costs, divide by eight and then work out 3% of that figure.
• If you refurbish your home office, you may be able to put some of these expenses to claim tax relief but general household repairs can’t be claimed.

If you don’t normally do a tax return, but have had to work from home due to the lockdowns, you can claim a tax rebate. We explain how to claim tax relief for working from home.

3. Certain types of work clothes count as expenses

Don’t get too excited, you can’t expense an entire new wardrobe. However, certain professions are allowed to make flat tax rate deductions each year for clothing necessary for their work, such as labelled uniforms or safety gear.

Ambulance staff on active service, for example, are allowed up to £185 per tax year. For bus conductors and drivers the figure is £60, which includes the cost of cleaning and repairing.

HMRC’s list is not exhaustive and you may be able to claim tax relief even if your particular job isn’t named. 

4. Memberships and subscriptions

I’m not talking about Netflix or Spotify here. But you might be able to claim tax relief for union subs or professional membership fees, as well as any subscriptions to trade journals that you genuinely need for work.

HMRC has a list of approved bodies. For example, the Royal Society of Arts is on there (£187/year) as is the Teachers’ Union (£17.12/month).

You, rather than your employer, have to pay for them and lifetime membership subscriptions aren’t included. 

5. Upskilling yourself can be good for your bank balance

If you are keen to keep your skills up to date or need certain qualifications to stay a member of a professional body, these count as legitimate business expenses. 

Any training courses you take must be directly related to your business and the work you do now.

6. Donating can be good for charity as well as your tax bill

Donating to a charity or community amateur sports club brings multiple benefits.

Through the Gift Aid system regulated and authorised by the Financial Conduct Authority, the charity is able to reclaim 25p for every pound you give. So more money goes to a good cause but there is also a benefit to higher earners.

If you give £10 a month to charity in the Gift Aid system, or £120 a year, the charity ends up with £150.

But you could also benefit from tax relief too, provided you are a higher or additional rate taxpayer. How much you can claim depends on the tax rates you pay:

• For a higher-rate taxpayer (who pays tax at 40%), they could claim 20% tax relief on their donations.
• An additional rate taxpayer (who pays income tax at 45%) can claim 25% tax relief on their donations.

You have to claim on your tax return. HMRC has more information on its website.

Basic-rate taxpayers do not benefit from further tax relief.

You can use our income tax calculator to work out your payments.

7. Don’t forget pension tax relief

Pension tax relief can be very valuable but not everyone is claiming all they can. Higher rate taxpayers and additional rate taxpayers are able to claim tax reliefs at 40% and 45% respectively on pension contributions.

But depending on the type of pension scheme they pay into, they may not automatically get the full amount of tax relief they are entitled to.

Members of trust-based workplace schemes receive their full tax benefits, as do those who pay pension contributions through salary sacrifice.

However, with group personal pensions, group self-invested personal pensions and stakeholder pensions, everyone gets pension tax relief at 20% regardless of what they earn.

So higher earners need to reclaim the difference on their tax return (an extra 20% or 25%).

If you’re unsure, speak to your HR team or your pension provider.

8. Married couples can reduce their tax by £100s

The Married Couple’s Allowance is an underused perk that could reduce your tax bill each year if you’re married or in a civil partnership.

If one partner earns less than the personal allowance (the amount you can receive without paying income tax, currently £12,570) they are able to transfer up to £1,260 of that allowance to their other half, as long as that person is a basic rate taxpayer.

For the 2022 to 2023 tax year, it could cut it by between £364 and £941.50 a year. You can back-claim for up to four years.

Find out more about this here with our guide to the marriage tax allowance.

9. More perks for married couples

Another perk for married couples. If you own shares, you can split the dividends between the two of you.

It could help you stay below the £2,000 tax-free dividend allowance so you don’t have to pay tax. Dividends above the threshold are taxed at 8.75% (basic rate taxpayers) while for higher rate taxpayers it’s 33.75%. 

Another way to avoid dividend tax is to put your personal savings and shares in a stocks and shares ISA. This will also shelter any growth in your investments from income tax and capital gains tax.

Check out our guide to the best stocks and shares ISAs here.

10. Side hustlers can earn £1,000 tax free each year

You can earn up to £1,000 in personal savings from trading, such as selling items on eBay, in each tax year, and £1,000 in gross income from property without paying a penny in tax.

A couple who both pay income tax at 40% can save up to £1,600 in tax. But what if your gross property income is above £1,000?

You can choose either to claim your actual expenses in the normal way or to set the £1,000 tax free allowance against your income. In effect, the decision will depend on the level of your expenses in any particular year.

To be more tax efficient as a freelancer, read this guide to paying your taxes.