Employee: Income Tax Strategies

 

When you work for a UK employer, paying PAYE is unavoidable, but here are some ways to reduce your income tax bill.

 

Business expenses when:

 

You have paid the expenses yourself without any reimbursement, and

Your employer reimbursed the expense and you were taxed on the reimbursed amount - unusual,

in practice reimbursed expenses are not subject to PAYE.

 

These include:

Uniforms and tools for the job

Memberships and subscription fees needed for the job

Unreimbursed mileage for using your own car for business travel

Reasonable hotels and travel costs

See https://www.gov.uk/tax-relief-for-employees/how-to-claim for ways to claim.

 

Tax deductible benefits:

 

They are usually subtracted from your gross salary and not taxed. For example:

Childcare vouchers

Meal vouchers

 

Pension contributions:

 

You can get tax relief on private pension contributions worth up to 100% of your annual earnings and up to the annual allowance of £40,000.

You get the tax relief automatically if your:

Employer takes workplace pension contributions out of your pay before deducting Income Tax

Pension provider claims tax relief for you at a rate of 20% and adds it to your pension pot (‘relief at source’). You get relief at source in all personal and stakeholder pensions, and some workplace pensions.

 

Investments in certain schemes:

 

Social investment tax relief – investment in charities, community interest companies, approved by HMRC. Investors can claim 30% of the investment from their tax bill.

Enterprise Investment Scheme – investing in unquoted, higher risk companies. Relief of 30% of the investment can be claimed.

Seed Enterprise Investment Scheme – similar to EIS but for smaller companies. Relief of 50% of the investment can be claimed