Self-assessment is not just about filling in a tax return, sending it to HMRC and paying your bill.

With a bit of planning it’s also an opportunity to minimise your tax liability, meaning more money stays in your pocket.

The next tax return deadline – 31 January 2018 – is for the 2016/17 tax year so this blog looks at ways to reduce your tax bill for this period.

Most people have a personal allowance of £11,000 for 2016/17, so your first £11,000 of income is tax-free. After that you’ll pay tax at the following rates:

Band Taxable income Rate
Basic £11,001 to £43,000 20%
Higher £43,001 to £150,000 40%
Additional over £150,000 45%

Beyond this, there are plenty of opportunities to further reduce your tax bill. Here are 3 things to consider if you’re in the process of completing your tax return for 2016/17. 

Got a lodger?

You can earn up to £7,500 a year tax-free by renting out a furnished room in your home under the government’s rent-a-room scheme. 

The scope of the scheme is fairly broad so if you have a lodger, run a B&B or let a room through websites such as Airbnb you can take advantage of the allowance. 

The exemption applies per property, rather than per individual, so the allowance is halved if you share the income with someone else.

Reporting 

There’s nothing to report if you earn less than £7,500 (after costs). 

If you earn more than £7,500 you can either: 

  • opt in to the scheme on your tax return to claim the allowance
  • choose not to use the scheme and record your income and expenses on your tax return instead. 

Tax breaks for couples

If your partner doesn’t pay tax, they may be able to transfer £1,100 (for 2016/17) of their personal allowance to you, reducing your tax bill by up to £220.

To benefit, one of you must have an income of less than £11,000 a year and the other person needs to be a basic rate taxpayer. 

The final thing to remember is you can’t claim it if you’re not married or in a civil partnership - no matter how long you’ve been together.

You only need to apply for the allowance once– it will continue automatically each tax year until your circumstances change or you cancel it. 

Expenses 

Broadly speaking, anything you buy to use in your business can be deducted as an expense. So claiming expenses is a good way to reduce your taxable profits if you’re self-employed.

In addition to things like travel and equipment costs, you may also be able to claim a portion of your bills if you work from home.

Expenses can be complicated to work out, but we can help you put a system in place.  

Need a hand?

Get in touch if you’re having trouble with your tax return. Our self-assessment experts can help ensure you get it sorted or sort it on your behalf.  

Read more about our self-assessment service or speak to us