Nothing much beats payday, when your hard work over the past month is rewarded with a nice bit of cash in the bank. But there is also the aftershock when you see how much of your salary is going to the taxman. However, there are ways you can be money savvy to ensure your payslip goes further and you pay less to HMRC.
General savviness
Before you begin trying to save money on your tax, it’s a good idea to take a look at your overall income and how you spend it first.
Be vigilant and budget
All employees should get a payslip every time you get paid, and it’s your responsibility to make sure you collect it from your employer and check that everything looks as it should. Check you are paid the right amount and that your tax code and National Insurance Number are correct so that you are not paying too much to HMRC. Everyone should receive their tax code from HMRC each year. Your payslip will display both your pre and post-tax income, so keep an eye on any payments coming out of your salary before tax, such as student loan repayments or pension contributions to make sure everything adds up. That final figure is essentially your budget for each month.
If you find you are struggling from one payday to the next, work out how much you need to spend on essentials such as food, bills and heating. Also look at the non-essentials such as your mobile phone, or any TV or gym subscriptions that could be reduced.
Make a list when you go shopping to help you stick to what you need and resist the temptation of special offers that, attractive though they may seem, simply aren’t necessary.
Remember it is also important to do your best to keep a little money aside for savings or as an emergency fund if your budget will stretch.
Ways to ‘cheat’ the system
It may seem like these tips are tricks to do such a thing, but they are all 100% legal and should be utilised! Now that you’ve sorted out your personal outgoings, it’s time to start saving money and getting the relief you’re entitled to.
Childcare
From nappies to food or the latest toys, kids are expensive. But, there is help to cope with the costs.
Childcare fees are among the biggest costs parent see coming out of their monthly income. But did you know you can use your payslip to make some savings using childcare vouchers?
Childcare vouchers come from your pre-tax income and can be put towards childcare fees as well as other costs you may want to cover for your children such as music lessons. This essentially lowers the amount of tax you pay on your income.
Basic rate taxpayers are entitled to vouchers worth £243 a month and higher rate tax payers can claim £124.
This is known as employer-supported childcare and is only available if an employer provides it, meaning self-employed parents miss out.
You need to act fast if you can get it though, as from April 2018 a new system is being set up called Tax Free Childcare. This works differently as parents will have access to individual accounts that they pay into. They’l then receive tax relief on payments that go to their childcare provider, rather than on their income directly.
Parents already registered on employer supported schemes can continue receiving payments from their payslip. This scheme can be more cost effective as it is paid out of your pre-tax income.
Pension
Saving for retirement may sound boring and too far away to think about, but it is important to consider how you will maintain your standard of living or pay the bills when you are working less or if you become ill.
This is where saving for a pension can be helpful to secure a comfortable retirement. Most employers must now provide a pension scheme to employees through auto-enrollment. Workers are automatically signed up to a pension scheme and contributions are made through your payslip. Your boss will often match your contributions up to a certain amount, and may even add a bit more!
Similar to childcare vouchers, contributions are taken from your pre-tax income. This lowers your take home pay but also reduces the amount you are taxed on.
The money that you put into a pension also benefits from tax relief. So, all taxpayers gets a 20 per cent boost on their contributions from the government, while higher rate taxpayers can claim an extra 20 percent on their tax return.
Season ticket loan
One of the best ways to save money on your commute is to buy your tickets in advance. Many commuters go for monthly tickets, which are generally cheaper than daily ones if you are travelling most of the week.
The biggest savings, though, can be made if you buy your season ticket for a year. This works out much cheaper than a monthly ticket. Plus, if you time it right you can avoid a train company’s price increase. In fact, you can save up to £1,700 a year by choosing an annual ticket if travelling between Milton Keynes and London! Other routes can expect savings of at least £100, in most cases.
Most people would struggle to get the hundreds and even thousands of pounds together to pay for year-long rail ticket in advance. So, it may be worth asking your employer if they can help. Some workplaces provide interest-free or low cost season ticket loans. Essentially your boss pays for your annual tickets and your repayments come out of your payslip based on your net monthly salary.
Bike
If you are always getting hit by train delays, it may be worth considering a bike.
Check if your employer provides a cycle to work scheme. These let you pay a small deposit for a bike and the rest is paid for through a loan from the scheme. You then repay it through your payslip based on gross salary, again reducing your tax bill.
At the end of an agreed payment period you can usually purchase the bike at a big discount, although this often depends on how much you initially paid.
You can save money and get fit at the same time. It might be worth checking whether there is a shower you can use at work if you have a long ride!
Did you find these tips useful? Let us know your own tips in the comments!
