5 Tax Hacks to Ease Financial Pressure

Every extra penny in your pocket counts at times like this. In this guide, we consider some simple tax hacks that can build up substantial savings for minimal effort.

Tax-Free Allowances
It’s possible to earn up to £12,570 per year without paying tax, although this is incrementally reduced for anyone earning over £100,000. This allowance is applied automatically. But you may not be aware that there are several other tax-free allowances that can be claimed by structuring your affairs efficiently. For example:

• Personal Savings Allowance – basic-rate taxpayers can receive tax-free interest of up to £1,000 on their savings. Higher-rate taxpayers can receive up to £500. This allowance is not available to additional rate taxpayers.
• Starting Rate for Savings – interest of up to £5,000 may be received free of tax, subject to your total income being no higher than £17,500.
• Marriage Allowance – a lower-earning spouse can transfer up to £1,260 of their tax-free personal allowance to their higher-earning partner (providing the partner is a basic-rate taxpayer), reducing the joint tax bill by up to £252.
• Dividend Allowance – you can earn dividends of up to £1,000 per year from your own company or investments without paying tax. This is reducing to £500 from 6th April 2024.

It’s possible to maximise these allowances by holding a combination of savings accounts and investments, and by carefully considering which spouse should own each asset.

Tax-Free Childcare
If you pay for childcare and earn under £100,000, you can claim a government top-up to help with the costs.

For every £80 you contribute to your HMRC childcare account, the government will add an extra £20. The maximum top-up that can be claimed is £2,000, or £4,000 if you have a disabled child.

There are a few conditions:

• Tax-Free Childcare is not available if you already receive Tax Credits or Universal Credit.
• The scheme must be used to pay for the care of a child under the age of 12, or for a disabled child under the age of 17.
• The money must be used to pay a registered, approved childcare provider.
• You (and your partner if you have one), must be either:
  - Working
  - On sick leave or annual leave
  - On parental, maternity, paternity or adoption leave
  - Earning at least the National Minimum Wage for at least 16 hours per week (this condition is waived if you - have started a new business in the last year)

You can contribute to your childcare account (and receive the government top-up) even if your childcare needs are variable. This can be useful if you work from home some of the time or are a seasonal employee. This can provide a valuable head start on childcare fees for when you need them.

For more information, see: https://www.gov.uk/get-tax-free-childcare

Work From Home Allowance
If you are required to work from home, you can claim a tax-free allowance of £6 per week to help with the costs. You can claim this through your employer, or directly through HMRC. This can reduce the amount of income you pay tax on by up to £312. This could be worth £62 for a basic rate taxpayer, £124 for a higher rate taxpayer, or £140 for an additional rate taxpayer.

You do not need to keep any records or complete a tax return unless you do so already.

More information can be found at: https://www.gov.uk/tax-relief-for-employees/working-at-home

Working Expenses Allowance
If you are required to maintain clothing or equipment to carry out your job, you can claim tax relief on the costs you incur if these are not covered by your employer. For example:

• Repairing or replacing small tools
• Cleaning, repairing or replacing your uniform or safety equipment
• Nurses can also claim for replacing shoes, socks and underwear

As many of our key workers are reliant on uniforms, tools and safety equipment, this hack can provide a small, but valuable tax saving.

See here for more information: https://www.gov.uk/tax-relief-for-employees/uniforms-work-clothing-and-tools

Pension Efficiency
While pension contributions are one of the most efficient ways of saving for your retirement, now may not be the time to think about increasing your contributions if you are already under financial pressure. However, there are some ways of making your existing pension more efficient:

• If your employer has offered to match your pension contributions, you should take this up if possible. Not only do you receive tax relief on your own contributions, you also receive an instant 100% return on your money when your employer contributions are added in.
• If possible, opt for making contributions by salary sacrifice. This reduces your National Insurance bill as well as your tax. Your employer will also save on National Insurance and may be prepared to share the saving with you.
• If you are a higher rate taxpayer, check that you are receiving your full rate of tax relief. If you are making personal contributions and do not complete a tax return, you will need to contact HMRC to receive your refund. This can be backdated by up to five tax years.
• Avoid taking income from your pension unless you need to. You will pay tax on the amount drawn and it may impact your options for paying into a pension in the future.

While the impact of each of these hacks may be small, in combination, and over time, they can build up a significant saving.

Please don’t hesitate to contact a member of the team if you would like to find out more about your tax planning options.