How to pay less tax

12 January 2015

A guide to help you pay less tax, plus essential tips for paying your tax self-assessment form online ahead of the January 31 deadline.



Paying income tax can leave a bitter taste in the mouth in the New Year.

No sooner is Christmas is over than it's time for those required to complete self-assessment tax returns to fill in the form.

January 31 is the deadline for filing your return – and paying the bill. 

Legal ways to avoid tax

There are actually plenty of legitimate ways to avoid paying income tax. But many people simply don’t know how to take advantage of the rules.

Here are some top tips on paying less tax. After all, why hand over more cash to the taxman than you have to?

1. Don't miss the self-assessment deadline

The golden rule is not to miss the deadline and be stung with a fine and interest charges. 

About 10.7million should have filed their returns to HM Revenue & Customs (HMRC) by January 31, but hundreds of thousands of people fail to do so.

As well as the late-filing penalties of £100, there are sanctions for late payment: 5% of the tax owed if up to 30 days late after the January 31 deadline, plus another 5% if the tax still has not been paid by July 31. 

If you need help, now is the time. For advice on completing a return, visit hmrc.gov.uk/sa or call 0845 9000 444. Don’t leave it until the last minute as the HMRC helpline is notorious for going into meltdown as the deadline approaches.

Ten common tax self assessment mistakes...

2. Make use of your personal allowances

If you have a partner or spouse who pays no tax or who pays tax at a lower rate than you, consider holding savings in their name so as a couple you pay less overall.

3. Transfer your unused allowance to your spouse

From April 2015, a person whose income is less than the personal allowance can transfer up to £1,060 of that unused allowance to their spouse if that person pays tax at the basic rate. 

This could be a great gift worth up to £212 for some couples.

Find out about the six taxes you can legally avoid.

4. Tax relief on pensions contributions

Most people know about the new ISA, which allows all adults to save £15,000 tax free, but don’t forget about the tax relief on pension contributions.

If you’re squirrelling away money for your retirement, look at a Self-Invested Personal Pension (SIPP). SIPPs offer tax rebates on contributions which are a shame to miss. 

You can access the money at 55 but can keep saving beyond that age – and benefitting from the tax relief.

Every £800 you pay in will automatically turn into £1,000, which you could see as an instant return.

Higher-rate taxpayers can claim back an additional £200 through a self-assessment form boosting their return even higher.

5. Plan ahead

With the pension freedoms due to arrive in 2015, make sure you have a plan for how you’ll use your pension pot when the time comes. 

The increased flexibility will benefit many, but if you withdraw more than the tax-free 25% you may be hit with additional tax.

Plan ahead, calculate if it’s worth the hit and also think about what you will do with the funds once you have them.

Read our guide to things you may have to pay tax on.

The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.