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3 tips to cut your tax bill before the end of January

With the online tax return deadline looming, we look into last-minute ways you can cut your tax bill this January.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

The deadline for online tax returns is midnight on Friday 31 January 2020.

If you still haven’t completed your self-assessment yet, getting it done will bring a sigh of relief. If you’ve already submitted your return – you’ve probably pushed the whole thing to the back of your mind by now.

Whichever camp you’re in, there are still three ways you can save money at the 11th hour. The key is to act now.

And what if you’ve already submitted your tax return? Don’t worry. You’ve got until the deadline to log back in and make any changes.

This article is not personal advice and does not cover all nuances. Tax rules can change and benefits depend on individual circumstances. Tax law is complex. If you are unsure of the suitability of a course of action or the tax implications please seek advice from a tax specialist.

  1. Reclaim any extra tax relief

    If you pay tax at a higher rate than the basic rate, don’t forget to include any pension contributions on your tax return.

    Doing so could significantly reduce your tax bill. You’ll find the correct section under tax reliefs, listed as ‘payments to registered pension schemes where basic rate tax relief will be claimed by your pension provider’.

    The key here is to make sure you enter the ‘gross’ value of your contributions. This isn’t just a total of all the money you paid in - it’s the total of everything you paid in, plus the basic rate tax relief already added to your pension. This is a 25% increase to the net amount you paid in. For example, if you have paid £8,000 into personal pensions, the gross value is £10,000.

    See our pension tax relief calculator

    Remember, Scottish taxpayers pay different rates of tax.

    If you have a Self-Invested Pension (SIPP) with us, you can see all your contributions in one place. Just log in to your account online and visit ‘portfolio history’, where you’ll find your transactions and contributions for each year.

    For other pensions, your provider should be able to tell you the gross value of your personal contributions for the 2018/19 tax year.

    Just remember you shouldn’t include contributions made by your employer, as it’s your employer who will be entitled to any tax relief on these. Contributions through salary sacrifice also don’t count as personal contributions, so you shouldn’t include these either.

  2. Claim for the little things

    If you work from home or use your own car for work now and then, it can seem like an awful lot of trouble to reclaim tax. Keeping mountains of records, collecting bills, doing complex calculations, all to make a relatively modest expenses claim.

    If you’ve ignored these expenses in the past because they seemed like too much trouble, there are two shortcuts that will make it easier.

    If you’re self-employed and work from home for at least 25 hours a month, you can use a flat rate for expenses:

    • £10 a month for 25-50 hours a month
    • £18 for 51-100 hours
    • £26 for 101 hours or more

    If you’re using your car for work purposes (and it isn’t a vehicle you’ve already claimed capital allowances for or included it as an expense when calculating your business profits), you can claim 45p per mile for the first 10,000 miles and 25p per mile thereafter. You can find out more about claiming expenses on the HMRC website.

  3. Claim against previous tax years

    Have you stumbled across something this tax year that you should have been claiming for in previous years?

    You can amend your 2017/18 tax return online before 31 January. It’s possible to go back even further, but you’d need to write to HMRC.

    If you filed your return online, you can amend it by logging in, going into your self-assessment account and choosing 'more self-assessment details'. In the left-hand menu, click on 'at a glance', then 'tax return options', and select the return you want to amend. You can then make changes and file it again.

    Once HMRC has had time to process this, you will see whether you have a refund or whether more tax is due on your statement. If the update is online, it should be possible to see the amended bill straightaway. Then, if the taxman owes you money, you can request a refund, which will take up to four weeks to reach your bank account.

Cut next year's tax bill, today

Why not go one stage further - if you are considering making contributions into your pension this tax year, why delay? Your tax return relates to the previous tax year, so making a pension contribution today could reduce next year’s tax bill.

Here's an example:

If you contribute £16,000, the government will add £4,000 basic-rate tax relief to give you £20,000 in a pension

If you’re a 40% taxpayer, you can reclaim up to a further 20% tax relief through next January’s tax return, reducing your tax bill by up to £4,000

If you’re a 45% taxpayer, you could reduce your tax bill by up to £5,000

Remember, the rates may differ if you are a Scottish taxpayer.

The tax relief you receive will depend on how much tax you pay and it’s worth remembering that tax rules may change in the future. In the example above, you'll need to earn at least £20,000. Money in a pension can’t normally be accessed until age 55, rising to 57 in 2028.

Try our pension contribution calculator

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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