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Best ways to minimise UK income tax

Best ways to minimise UK income tax

Many resources out there are focused on employees and everyday individuals making better-educated financial moves, but what if you’re a higher-rate taxpayer or have a company with a March year-end and are looking to save money on your income tax?

Well, the good news is that we’ve got a host of tips that are designed to help employees manage their impending tax bills.

1. Review your outgoings

One of the first things to do when saving on income tax is undertake reviews of your current finances and outgoings. Begin with your income recognition policy, as you may not only be paying out too much tax, but also too soon. This can be especially important for businesses that receive payments before work is carried out, so if this applies to you, be sure not to add any advance payments as income to your tax return until work is completed.

Next, do a general review of your expenses to see where you can save, as you may be overlooking overheads that will cost you. For example, money can be lost through bad debt provision, the interest paid on business loans, lease premiums and more.

No business wants to be paying out more than they can afford unnecessarily, and with just a simple review of outgoings, significant cash can be saved.

2. Make use of corporate tax relief to reduce your tax bill

There are a host of tax relief options out there for employers that often go unnoticed. With this in mind, many businesses miss out on the Research and Development (R&D) tax relief, as this is typically awarded to those in the pharmaceutical industry. It may be worthwhile to know that any businesses that function within an ‘innovative’ industry (such as engineering, software development, or even creative niches) can also make a claim. Under normal circumstances, expenses that are made for the purpose of trade can qualify against business income by 100%, but the R&D tax relief could see you claiming significantly more. Consult a financial advisor to see if you qualify.

3. Make some tax-efficient investments

When it comes to reducing your income tax, it may be worthwhile to make some tax-efficient investments. Getting involved with either the Explore Enterprise Investment Scheme (EIS) or the Seed Enterprise Investment Scheme (SEIS) could help businesses to enjoy tax breaks in the form of income tax refunds, free capital gains tax and more. Another attractive feature is that investing in a business that is registered with either of these will allow you to claim 50% of your investment back against any income tax you’ve already paid out.

4. Go digital

Transferring an array of processes to digital formats and making use of automation where possible could save you money in more ways than one. For example, VAT-registered businesses need to start keeping their financial records in the digital environment and submit their VAT returns to the HMRC via Making Tax Digital (MTD) compatible software. This regulation was instated in 2019 and any employers that don’t comply will be subjected to fees.

Are the above steps worthwhile?

As the cost of living is going up in the UK and the future of taxes for businesses and more is in the balance, making use of as many money-saving endeavours as possible can only serve to benefit you in the long run.

With this in mind, having all the right tools at your disposal can be especially worthwhile when reducing outgoings and making your business work better for you. An income tax calculator, like the one here at income-tax.co.uk, can help you to stay on top of what you owe, so that you can implement money-saving strategies with ease.

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