Personal tax advice and bespoke tax planning can save you money, time and effort.
This helpful guide will explore everything you need to know, including the benefits of receiving independent tax advice.
Good tax advice can deliver a significant improvement in your take-home income, reduce the risk of making errors on your tax return and make your finances much more predictable over the long term.
As an individual, there are several ways in which you may have to pay tax: on your income, on investment growth and some savings interest, as well as on assets you inherit.
Whether you have to pay tax, and how much, can depend on a number of circumstances, so it isn’t always easy to work out what you owe.
This means running the risk of either paying too little (and potentially getting into trouble with HMRC) or paying too much and losing the money you need.
Unless your tax affairs are very simple, it can be very useful to have an accountant to help you calculate your personal tax bill and also find ways to reduce it.
This guide offers answers to the most popular personal tax questions. You can click on the below question if there’s a specific one you have in mind.
When do I need to pay my tax bill?
You must pay any tax you owe by midnight on 31 October if you’re completing a paper tax return or by midnight on 31 January if you’re doing it online.
So if you are paying tax for the 2022/23 tax year, you must pay by midnight on 31 January 2024.
What is personal tax planning?
HMRC says it wants people to pay 'the right amount of tax', and you should want this too.
Many people end up paying more tax than they need to as they are unaware of their allowances and the various legal methods they can use to reduce their tax bill.
Tax planning lets you see exactly where you are paying tax and whether you are paying too much.
You can track how much tax you've paid (and whether you still owe tax or have money owed to you) via your personal tax account on the government's website.
What's the difference between tax planning and tax avoidance?
Tax planning is the process of organising your finances so you don't pay more tax than is necessary.
For example, it means keeping track of your allowances, tax-deductible expenses, charitable donations and business losses, while being aware of how to cut your tax bill using things like pensions and individual savings accounts (ISAs).
Tax avoidance, on the other hand, typically involves reducing your tax bill by some form of investment scheme. Many schemes are legal, and others appear to be legal from a technical point of view.
However, if HMRC concludes the sole purpose of the scheme is to avoid tax, it may decide it is not legitimate.
Many investors have used tax avoidance schemes in good faith only to find that they owe years of unpaid tax, so approach these schemes with extreme caution and seek advice.
Do I need personal tax planning advice?
If you run a business, do freelance or contract work, or have multiple sources of income, then you will need to complete a self-assessment tax return.
Personal tax planning advice can help ensure you complete your self-assessment form accurately (and avoid penalties from HMRC) while ensuring you do not pay more tax than you have to.
Getting advice will also make you aware of all the allowances, reliefs and expenses you can claim, and make sure you don't lose money unnecessarily. It can also save you a great deal of time and effort.
How do I complete a self-assessment tax return?
If you are on an employer’s payroll (PAYE) and this is your only source of income, then your tax will be deducted at source and you don’t have to do anything.
But if you are self-employed, a freelancer or contractor, or have any other sources of income, such as rental property, then you’ll have to complete a self-assessment tax return.
If you receive a notification to submit a tax return, you must do it, even if you don’t think you owe any tax.
There are penalties for late tax returns, so even if you don’t think you can pay your tax bill, you should still submit your application on time.
The self-assessment tax return form can be daunting, and more so as your finances become more complex.
It’s easy to make mistakes and incur penalties, or to err on the side of caution and end up paying too much tax.
What are some of the different types of tax you might need to pay?
Here’s a summary of the different kinds of tax you may need to pay, and how each one is calculated.
There are three bands of income tax: basic rate (20%), higher rate (40%) and additional rate (45%).
You start paying basic rate income tax on all income over your personal allowance (£12,570 in the 2023/24 tax year) and a higher rate on everything over £50,270.
You become an additional rate taxpayer when your annual income exceeds £125,140.
You pay it if you are employed and between the ages of 16 and state pension age.
There are four main kinds of NI contributions, although employed people will only pay Class 1 contributions (unless they also choose to make Class 3 contributions).
If you’re self-employed, you can find out what NI contributions you have to pay in the next section.
You pay Class 1 NI contributions if you are an employee (i.e. you work for an employer) earning over £242 a week from one job and this is paid via PAYE.
Class 3 contributions are voluntary and for people who aren’t required to pay Class 1 or 2 but who want to keep their rights to certain state benefits.
What tax do I pay if I’m self-employed?
If you’re self-employed, you’ll pay income tax on your profits – that is, your total income minus business expenses.
Many business expenses qualify, such as travel, accommodation, staff costs, heating, lighting and rent for business premises, business rates, stock and raw materials. You can find a full list on the government’s website.
Keep a detailed record of all such expenses and include them with your self-assessment form.
If you buy something for your business that is an ongoing asset (such as equipment, machinery or computers), then this is classed as a capital asset rather than an expense.
Capital assets qualify for a different kind of tax relief, called capital allowances.
Usually you can claim relief for up to £1 million of spending on capital assets, though it’s possible to claim lower levels of relief (‘writing down allowances’) on spending that exceeds this.
Ask your accountant about business expenses and capital allowances and whether you can claim them to reduce your tax bill.
You’ll also pay NI, which helps to pay for state benefits, if you’re at least 16 and under the state pension age.
If you’re self-employed and your profits are less than £12,570 annually, you won’t pay Class 2 NI contributions. If your profits are above £12,570, you’ll pay both Class 2 and Class 4 NI contributions.
Class 2 contributions are the same for everyone who pays them. Class 4 contributions are 9% of your profits between £12,570 and £50,270, and 2% of profits above this.
Your accountant can help you calculate your NI contributions accurately. Class 2 and 4 contributions are both payable via your self-assessment tax return.
As we previously mentioned, Class 3 contributions are voluntary and for people who aren’t required to pay Class 1 or 2 contributions but who want to keep their rights to certain state benefits.
Capital gains tax
If you sell or dispose of assets that have risen in value, you may have to pay capital gains tax (CGT). This might include business assets, stocks and shares, antiques or any other chargeable possessions.
CGT is also due when you sell property (though your main home is usually exempt) and is charged at a higher rate.
You pay CGT on the gain in the asset’s value since you acquired it – not on the total sale price.
What’s more, everyone has a CGT allowance (£6,000 or £3,000 for trusts for the 2023-24 tax year) so you’re only taxed on gains above this level.
CGT is charged at four different rates, depending on the type of asset and on your income tax band
Your income tax band
Higher or additional rate
If you’re a basic-rate taxpayer, take extra care as your gains (minus your CGT allowance) may lift your annual income into the higher-rate band.
Everything above the band will be taxed at a higher rate, while everything below it will be charged at the basic rate.
It’s worth noting that some assets are exempt from CGT.
This includes (but is not limited to) your primary residence, personal possessions with a value of up to £6,000, betting or lottery winnings and gains from ISAs and Premium Bonds. You can find the full list of exemptions on the government website.
If you are in a relationship, you can potentially save more by using both your allowances. An adviser can help you calculate your CGT bill accurately, and minimise the amount you have to pay.
When you die and pass assets to your beneficiaries, they may have to pay inheritance tax (IHT).
This tax needs to be paid within six months of your death, which can create complications if the assets have not been released by that time.
Beneficiaries may have to pay IHT out of their own assets before the estate is settled ('probate'), or take out a bank loan to cover the bill.
The same applies if you inherit assets from someone else, in that you may have to pay the IHT bill before assets are released to you.
However, there are ways to plan ahead for such situations.
Inheritance is not counted as income, so you don’t have to include it on your self-assessment tax return.
You can find out here aboutâ¯planning for IHT.
What about business tax?
Find out about how your small business may be taxed and how to manage company tax affairs, in our article on Business Tax.
If you found this article helpful, you might also find our article on business property relief informative too.
Do I pay tax on shares?
You may also need to pay CGT if you sell shares you own for a profit, exceed your annual allowance and don’t hold your investments in an ISA, or don’t sell or gift shares to your spouse of civil partner.
If you earn dividends, you may have to pay dividend tax if the amount exceeds your allowance (and are not held in an ISA or pension).
Do I pay tax on my pension income?
Any income from pensions is taxed if you exceed your personal allowance (£12,570 for the 2023/24 tax year).
You’ll pay 20% tax on income of between £12,571 and £50,270 beforeâ¯higher rate tax kicks in.
Some of your pension is tax-free. The amount that is tax-free depends on how you access it, whether it’s a lump sum or via smaller withdrawals.
You also may have to pay tax on your state pension, depending on your annual income.
It’s a good idea to seek financial advice before accessing your pension so you don’t end up with an unnecessary and expensive tax bill.
Do I pay tax on foreign income?
Figuring out whether you pay tax on foreign gains and income tax – and how much – can be tricky as it depends on whether you are considered a UK resident or not.
Do I pay tax on cryptocurrency?
Cryptocurrency has soared in popularity as an alternative (and high risk) investment.
You may have to pay income tax and if you dispose of any crypto assets, you may be subject to CGT.
Our cryptocurrency tax guide will reveal everything you need to know, including when you don’t need to pay tax.
Can I get help with my tax?
Making sure you pay the right tax can be difficult, but there is free help on hand.
If you have any queries, call HMRC. You should also call them if you can’t pay your tax bill on time, disagree with how you’re being taxed (for example, if your tax code is wrong) or have additional needs.
Alternatively, you can appoint someone to talk to HMRC on your behalf – so all correspondence will go to the person you’ve appointed, unless it’s a tax bill or refund.
Or in the short-term, a trusted individual can help you in a call with HMRC.
Finally, you can find an accountant to help you with your tax affairs and find the right expert via Unbiased.
You can also authorise them so they can deal directly with HMRC.