Home > Laws & Tax > Avoiding Tax on Your Extra Income

Avoiding Tax on Your Extra Income

By: Garry Crystal - Updated: 23 Sep 2012 | comments*Discuss
 
Tax Free Extra Income Taxation

Avoiding tax on any extra income is feasible under certain circumstances. Of course avoiding tax if it is due on earnings is never a wise move, but there may be certain times when tax can be avoided or lessened with tax breaks.

Stay Within the Personal Tax Allowance

Every worker in the UK has a personal tax free allowance. This means that if they earn this limit or under they will not have to pay any income tax. This personal tax allowance presently sits at around £6475. It is unlikely that workers with second jobs will make less than this but it does mean that people who earn around £120 a week will be able to avoid tax on this income. The personal tax allowance does vary between certain age groups and pensions will be taken into account when calculated.

Room Renters and Avoiding Tax

Home owners or renters who rent out a spare room can rake in a fair amount of extra income per year and this is taxable. However, under the rules of the government Rent a Room scheme the landlord can earn up to £4,250 per year without paying any tax on this income. This means that a room can be let for £81 per week without taxation. Of course any additional fees on top of this such as electricity, meals, etc will have to be added to the rental amount and may top the tax free limit. Landlords should calculate whether or not it is worth using the Rent a Room tax free allowance scheme.

The Two Jobs Tax Dilemma

Having more than one income can lead to some confusion when it comes to taxation and obtaining the right tax codes. Having the wrong tax code on a second job could mean paying more tax, known as an emergency tax. Those who work second jobs should always check they have been assigned the right tax code to avoid paying this extra tax.

Those who take on a second job can jump up to a higher tax band if the combined total salary does put them in the higher earnings bracket. It will be beneficial for employees to calculate whether or not the extra income is actually worth the work depending on the amount of tax being paid if the lower tax band is exceeded.

Working from Home Tax Breaks

People who work from home do still have to pay tax on their earnings if they exceed their personal tax allowance. However, there are some tax relief allowances that can be applied that many people never actually consider. Tax relief can be claimed on a number of expenses such as business calls, business assets, company car and even a certain amount of relief on mortgage payments. This can offset the amount of tax due against the tax relief to lighten the amount paid to the tax man. A good accountant or tax expert will be able to assess all of the tax breaks possible for home workers.

Tax Free Investments

Of course not all investments will pay rewards but there are some that can bring in some extra income and are tax free. Investments can include Premium Bonds, which is a good way to save and can actually win the investor cash prizes that are also tax free. Individual Savings Accounts (ISA) are also tax free with limits set on how much can be put in. Interest and financial returns on these investments are tax free, and the same amount can be invested each year and kept safe from the tax man.

Tax mistakes can be made, and they frequently do go unnoticed. Tax codes, tax allowances, and certain sources of income should always be checked to make sure that the correct tax is paid or that taxation is avoided. Extra income is always useful and usually means extra work, it’s a lot better off in the earner’s pocket than the tax mans.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
Why not be the first to leave a comment for discussion, ask for advice or share your story...

If you'd like to ask a question one of our experts (workload permitting) or a helpful reader hopefully can help you... We also love comments and interesting stories

Title:
(never shown)
Firstname:
(never shown)
Surname:
(never shown)
Email:
(never shown)
Nickname:
(shown)
Comment:
Validate:
Enter word:
Topics