When it comes to salary taxation, many feel like they’re handing over too much of their hard-earned money. At Jungle Tax Accountant for Creatives, we’re here to break down how tax on salary works and share actionable tips to reduce it. Let’s dive in!
1. How Tax on Salary Works
Your salary is taxed based on the UK’s Pay As You Earn (PAYE) system. Here’s a breakdown of how it works:
- Income Tax: Taxed in brackets depending on your income level:
- 0%: Up to £12,570 (Personal Allowance)
- 20%: £12,571 to £37,700 (Basic Rate)
- 40%: £37,701 to £125,140 (Higher Rate)
- 45%: Over £125,140 (Additional Rate)
- National Insurance Contributions (NICs):
- Class 1 NICs for employees:
- 12% on earnings between £12,570 and £50,270.
- 2% on earnings above £50,270.
- Class 1 NICs for employees:
Jungle Tax Accountant for Creatives can help you understand exactly how much tax and NICs you’re paying and why.
2. Example: Tax on a £125,140 Salary
Let’s break down the tax liability for someone earning £125,140:
- Personal Allowance: Reduced to £0 (as income exceeds £100,000).
- Income Tax:
- 20% on £37,700 = £7,540
- 40% on £87,440 (from £37,701 to £125,140) = £34,976
- Total Income Tax = £42,516
- National Insurance:
- 12% on £37,700 = £4,524
- 2% on £75,140 (above £50,270) = £1,502.80
- Total NICs = £6,026.80
Total Tax and NICs: £48,542.80
With Jungle Tax Accountant for Creatives, you can explore ways to reduce this tax burden legally and efficiently.
3. Ways to Reduce Tax on Salary
Here are some strategies you can use to reduce your tax liability:
a. Salary Sacrifice Schemes
Contribute to pensions, cycle-to-work schemes, or childcare vouchers directly from your salary to reduce taxable income. Jungle Tax Accountant for Creatives can guide you through setting these up.
b. Claim Tax Relief on Expenses
If you’re working from home, traveling for business, or purchasing work-related equipment, you may be able to claim tax relief. Jungle Tax Accountant for Creatives can help you identify all allowable expenses.
c. Pension Contributions
Paying into a private or workplace pension reduces your taxable income while building your future savings. We at Jungle Tax Accountant for Creatives will ensure you’re maximizing these benefits.
d. Use Your Personal Savings Allowance
If you earn interest on savings, the first £1,000 (for basic rate taxpayers) or £500 (for higher rate taxpayers) is tax-free. We’ll help you make the most of this allowance.
e. Spouse or Partner Tax Transfers
Transfer part of your personal allowance to your spouse or partner if their income is lower, reducing your overall tax liability. Jungle Tax Accountant for Creatives will help you determine if this applies to you.
f. Switch to Dividend Income
If you own a limited company, consider taking dividends instead of a higher salary. Dividends are taxed at lower rates. Jungle Tax Accountant for Creatives specializes in tax-efficient remuneration strategies for creatives.
g. Section 64: Offset Business Losses Against Employment Income
Under Section 64 of the Income Tax Act, you can offset losses from a business (such as a side hustle) against your employment income. For example, if you start a creative side hustle and incur losses in its first year, you can use these losses to reduce your overall tax liability and even claim a tax refund. Jungle Tax Accountant for Creatives will help you explore this valuable option.
4. The Role of Tax Planning
Proactive tax planning is crucial to minimizing your tax liability. With Jungle Tax Accountant for Creatives, we’ll develop a tailored tax strategy, ensuring you keep more of your hard-earned money.
5. Why Choose Jungle Tax Accountant for Creatives?
- Industry Expertise: We specialize in helping creatives, freelancers, and small business owners navigate complex tax systems.
- Tailored Solutions: Our strategies are designed to fit your unique financial situation.
- Maximized Savings: We leave no stone unturned in finding ways to reduce your tax burden.
- Stress-Free Experience: Let us handle the paperwork while you focus on your craft.
Final Thoughts
Paying tax on salary doesn’t have to feel overwhelming or unfair. With the right guidance and strategies, you can significantly reduce your tax liability. Jungle Tax Accountant for Creatives is here to help you every step of the way.
👉 Book a free consultation today to explore how Jungle Tax Accountant for Creatives can help you save on salary taxes and maximize your income.
Contact Us: 0333 880 7974 | jungletax.co.uk