9 Strategies to Save Money in UK Tax Returns Online

Fortunately, the UK tax system provides opportunities to save money and ease some of this burden. In this blog, we’ll share nine essential UK tax-saving tips to help you keep more of your hard-earned cash while filing tax returns online.

9 Strategies to Save Money in UK Tax Returns Online

Follow these easy tips while filing tax returns online:

1. Review Your Tax Code

Many taxpayers unknowingly overpay their taxes due to an incorrect tax code. Your tax code determines how much tax is deducted from your income, and errors can lead to either overpayment or underpayment of taxes.

How to Check:

• Review your payslip, P60, or P45.
• Log into your Personal Tax Account on HMRC’s website.
• If you’re unsure, call HMRC to verify your tax code.

It's also crucial to review your tax code to avoid underpayment. While paying less tax might seem appealing, getting hit with a costly fine later can be much worse.

2. Maximise Your ISA Contributions

An Individual Savings Account (ISA) lets you save or invest money without paying tax on the interest, dividends, or capital gains you earn. You can invest up to £20,000 per year across different types of ISAs, such as:

• Cash ISA: A savings account where you don’t pay tax on interest. (Suitable for low-risk savers.)

• Stocks & Shares ISA: Invest in stocks, bonds and funds without paying tax on dividends or capital gains. (Returns are not guaranteed, as investments can fluctuate in value)

• Lifetime ISA: Ideal for first-time homebuyers or retirement savings. The government adds a 25% bonus on contributions (up to £1,000 per year). However, a 25% penalty applies if withdrawn for other purposes before age 60.

• Innovative Finance ISA: Allows investment in peer-to-peer lending and other alternative finance products tax-free.

Key points to remember:

• The £20,000 annual allowance is shared across all ISAs (e.g., you can split it between a Cash ISA and a Stocks & Shares ISA, but the total cannot exceed £20,000).

• The new tax year begins on April 6th, so make sure to use your ISA allowance before then, as any unused amount won’t roll over to the next tax year.

• Some ISAs have withdrawal restrictions, so choose based on your savings goals.

3. Claim Pension Tax Relief

If you save money into a pension, you get tax relief on your contributions, which helps reduce your overall tax bill and boosts your retirement savings.

• Basic rate taxpayers (20%) get relief added automatically. If you contribute £80 to a pension, the government tops it up to £100.

• Higher rate taxpayers (40%) and additional rate taxpayers (45%) can claim extra relief through their Self-Assessment tax return. For example, if you’re a higher rate taxpayer, a £100 pension contribution effectively costs £60 after tax relief.

Maximising your Pension Benefits:

• If your employer offers a workplace pension, increasing your contributions may bring additional benefits, such as employer matching.

• Salary sacrifice schemes can also reduce NICs alongside pension tax relief.

4. Check if HMRC Owes You a Tax Refund

Receiving a tax refund can be a pleasant surprise. It’s more common to overpay taxes than you might think, often occurring due to various reasons such as changing jobs and being assigned the wrong tax code, paying emergency tax because your employer doesn’t have your full PAYE details, having multiple income sources that affect tax calculations, or being self-employed and overpaying through Payments on Account.

How to Check and Claim Your Refund:

1. Log into your HMRC Personal Tax Account to see if you are due a refund. This is the most reliable way to access your tax records.

2. Look for a P800 form from HMRC, which they send if they believe you have overpaid.

3. If you’re self-employed, check your tax payments using the Self Assessment portal.

Refunds are typically processed within a few weeks, but delays can happen, so it’s best to check early. Additionally, be cautious of unsolicited emails or texts offering tax refunds, and always verify information through official HMRC channels. Remember, HMRC will never charge you for a refund.

5. Take Advantage of Marriage Allowance

If one partner earns below the Personal Allowance (£12,570) and the other is a basic rate taxpayer (20%), the lower earner can transfer up to £1,260 of their unused allowance, reducing the higher earner’s tax bill by up to £252 per year.

Eligibility:

• You must be married or in a civil partnership (not just living together).
• The lower-earning partner’s income must be below £12,570.
• The higher-earning partner’s income is between £12,571 and £50,270 (£43,662 in Scotland) before they receive Marriage Allowance. If their income exceeds this range, they are not eligible.
• Neither partner is claiming the Married Couple’s Allowance. This is a separate tax relief available only to couples where at least one partner was born before 6 April 1935.

You can apply for Marriage Allowance online through HMRC, with the option to backdate claims to 5 April 2020, if eligible.

6. Take Advantage of the Starting Rate for Savings (if Applicable)

If your income is below £17,570, you may qualify for a starting rate for savings, which allows you to earn up to £5,000 in interest from your savings without paying any tax. However, the more you earn from other income (such as wages or pensions), the less your starting rate for savings will be.

Here’s an example for clarity: If your other income (excluding savings interest) is below the personal allowance threshold of £12,570, you can receive up to £5,000 in savings interest tax-free under the starting rate for savings. However, if your total income (including savings interest) falls between £12,570 and £17,570, the £5,000 starting savings allowance is gradually reduced by £1 for every £1 of other income above the personal allowance.

But what if your income exceeds £17,570?

You may still benefit from the Personal Savings Allowance (PSA):

• If you're a basic rate taxpayer (earning between £12,570 and £50,270), you can earn up to £1,000 in tax-free savings interest.
• If you're a higher rate taxpayer (earning between £50,270 and £125,140), you can earn up to £500 in tax-free savings interest.
• If you're an additional rate taxpayer (earning over £125,140), you won't have a personal savings allowance, so all interest will be taxed.

Tip: Consider using an ISA (Individual Savings Account) to grow your savings tax-free, regardless of your income level.

7. Claim Tax Deductible Expenses

If you're self-employed, you can significantly reduce your taxable income by claiming allowable business expenses. It's crucial to understand which expenses qualify, as claiming ineligible items can lead to unintentional tax errors.

Common tax-deductible expenses include:

• Office Costs: This includes stationery, postage, phone bills, and internet expenses.
• Travel Costs: You can deduct fuel, mileage, train fares, and accommodation for business trips.
• Equipment: Items like tools, computers, and software necessary for your business can be claimed.
• Professional Fees: Accountant fees, legal fees, and professional subscriptions are deductible as well.

To help estimate potential savings, you can use a self-employed tax calculator. However, please remember that these calculators provide estimations, and HMRC makes the final determination of allowable expenses.

Tip: Keep detailed records and receipts for all claimed expenses, and refer to HMRC’s official guidelines for a full list of allowable deductions.

8. Reduce Your Taxable Income with Company Perks

If you're an employee, you may have access to workplace benefits that can help lower your taxable income. If you're looking to maximise your earnings, it's worth exploring these options with your HR department.

Here are some potential benefits to consider:

Tax-Free Season Ticket Loans: Reduce commuting costs by taking advantage of interest-free loans for season tickets on trams, buses, tubes, or parking.

Salary Sacrifice Schemes: Some employers offer salary sacrifice schemes, which allow you to exchange a portion of your pre-tax salary for benefits like company cars, childcare vouchers, or pension contributions. This effectively reduces your taxable income.

Bonus Sacrifice: If receiving a bonus could push you into a higher tax bracket, consider sacrificing a portion of it (for example, by contributing it to your pension) to avoid higher tax rates.

Tip: Speak with your employer about available salary sacrifice schemes and use a tax calculator to see how these options could help you save money.

However, it's important to note that the calculator doesn’t fully account for how potential benefits can help maximise your earnings. For a complete understanding, you may need expert guidance from Taxd.

9. Meet Your Self-Assessment Tax Return Deadlines

During tough financial times, no one wants to deal with a fine from HMRC for something easily avoidable. If you're self-employed, January 31st should be the most important day of the year—after your birthday!

This is the deadline for both filing your online Self-Assessment tax return and paying any owed tax. Filing online is strongly recommended for speed and efficiency. If you choose to file a paper tax return, the deadline is October 31st of the preceding tax year.

Missed Deadlines = Automatic Fines: Even if you have no tax to pay, late submissions result in a £100 penalty, which increases over time.

Tip: To avoid last-minute stress, gather your financial records early and consider using tax software or an accountant for a smooth filing process.

Bottom Line

Managing your taxes effectively can help ease financial stress. By using these nine money-saving strategies, you can reduce tax liabilities and keep more money in your pocket.

For hassle-free tax filing, consider using Taxd for self-assessment online.

FAQs

1: What is the personal allowance in the UK?

For the 2024/25 tax year, the personal allowance remains at £12,570. This means you won’t pay income tax on earnings up to this threshold. The allowance is frozen until April 2028.

2: Where can I confirm my tax code?

You can check your tax code on your payslip or P60 or by logging into your HMRC Personal Tax Account online. If you notice any discrepancies, contact HMRC immediately to ensure you're on the correct tax code and not overpaying tax.

3: What are the tax benefits of ISAs?

Individual Savings Accounts (ISAs) offer a tax-free way to save and invest. You can contribute up to £20,000 per tax year, and any interest, dividends, or capital gains earned within an ISA are completely free from income tax and capital gains tax.

This makes ISAs a great option for maximising savings and investments while reducing your tax burden.

4: Am I eligible to claim expenses as a self-employed individual?

Yes, if you're self-employed, you can claim allowable business expenses like office supplies and travel costs to reduce your taxable income and lower your tax bill. However, it's important to note that not all expenses qualify.

To be deductible, expenses must be “wholly and exclusively” for business purposes. Keeping detailed records and receipts ensures compliance and maximises your tax savings.