Understanding Tax Deductions: How to Keep More Money in Your Pocket

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Taxes are a certainty of life, but there are legal and ethical ways to reduce your tax liability and put more money back into your pocket. Tax deductions are expenses or items that reduce your taxable income, ultimately lowering the amount of income that is subject to taxation. In this blog post, we will delve into the world of tax deductions and explore how you can use them to your advantage.

MW Accounting Services offer advice and help with your taxes. If you’re looking for a tax accountant in Milton Keynes please get in touch with our specialist chartered tax adviser, and we can look into how we can help manage your taxes more efficiently.

Personal Allowance: The Personal Allowance is the amount of income you can earn each year before you start paying income tax. For the tax year 2023/24, the Personal Allowance is £12,570. This means you won’t pay any income tax on earnings below this threshold. Beyond this threshold, you’ll pay tax at the applicable rate. Keep an eye on updates to this allowance, as it can change from year to year.

Marriage Allowance: If you’re married or in a civil partnership, you may be eligible for the Marriage Allowance. This allows you to transfer a portion of your Personal Allowance to your spouse or civil partner if they earn less than you. As a result, they can reduce their tax liability. As of 2023/24, the Marriage Allowance allows you to transfer up to £1,260 of your Personal Allowance.

Pension Contributions: Contributing to a pension scheme is not only a smart way to save for retirement but can also provide significant tax benefits. Your contributions receive tax relief, meaning that some of the money that would have gone to the government as tax is redirected into your pension. The tax relief is available at your highest marginal rate. Keep in mind that there are annual and lifetime limits on pension contributions.

Entrepreneur’s Relief: If you’re a business owner or involved in a business venture, Entrepreneur’s Relief can reduce the amount of Capital Gains Tax you pay when you sell all or part of your business. It’s worth exploring if you’re planning to sell a business or business assets.

Work from Home Expenses: If you work from home, you may be able to claim tax relief on some of your household bills. The exact rules can be complex, but it’s worth exploring if you’re a remote worker or run a business from your home.

In conclusion, understanding tax deductions in the UK is essential for optimising your financial situation and keeping more of your money in your pocket. These deductions and allowances are designed to help individuals and businesses make the most of their income while remaining compliant with tax laws. Keep in mind that tax laws can change, so it’s crucial to stay informed and consider seeking professional advice from a tax advisor or accountant to ensure you’re taking full advantage of the available deductions and allowances.

With careful planning and knowledge of the tax system, you can minimise your tax liability and enjoy the benefits of increased financial security. If you would like to speak to accountant for taxation in Milton Keynes, get in touch with MW Accounting to learn more about the services we offer.