“In this world nothing can be said to be certain, except death and taxes.”
American founding father Benjamin Franklin is famed for having said these words in a letter in 1789, and they are arguably just as true today as ever before. Just like death, tax is an inevitable part of life.
That said, it is still important to keep a meticulous eye on your Income Tax position throughout the year. As a professional rugby player, you are likely a higher- or additional-rate taxpayer. That means you will usually need to fill out a self-assessment tax return assuming your pay is not via Pay As You Earn (PAYE), making it your responsibility to accurately input your details so you pay the correct amount of tax.
Unfortunately, it is still possible that you could end up paying an incorrect amount of tax for one of many reasons.
For example, if you have extra work aside from playing professionally, this could see your tax-free Personal Allowance duplicated, or even the wrong tax code being applied to you.
It could also occur as a result of the misprocessing of important forms when completing your self-assessment.
Incidents like these could see the tax bill you have to pay be miscalculated, leading you to pay more or less tax than you actually owe.
Fortunately, it is now easier than ever to check how much tax you have paid by using the HMRC app. Additionally, did you know that with careful management, you may even be able to mitigate how much tax you owe next year?
So, find out how using the HMRC app can help to ensure that you pay the right amount of tax, and what you could do to potentially reduce the size of your tax bill next year.
Use the HMRC app to check how much tax you have paid
In the past, working out how much tax you paid compared to what you should have owed used to be a more difficult process. It would involve checking all your paperwork, calculating the tax bill you think you should have paid, and then checking that the two matched up to the bill you had to pay.
If you discovered a discrepancy here, you would then have to spend time on the phone to HMRC to rectify it, a time-consuming and potentially frustrating thing to have to do.
Fortunately, you can now use the HMRC app to manage different elements of your tax position. For example, you can register for self-assessment and make payments directly on it, a useful tool for you as a professional rugby player.
Additionally, you can also view your PAYE tax codes, employment history, and Income Tax history, if you have any. With this information to hand, it can be easier to work out whether your tax bill is correct, rather than having to check through all your paperwork.
This can be useful for completing a self-assessment tax return, or for passing on to your accountant if they handle your tax position for you.
You can also claim a refund on any overpaid tax directly on the app.
Beyond these features, the app offers a wide range of services, allowing you to:
- Check payments from your employer
- Use the HMRC tax calculator to work out your take-home pay after deductions for Income Tax or National Insurance (NI)
- Track forms and letters you have sent to HMRC
- Report changes, from tax credit changes to updating your address.
In the 12 months to October 2022, HMRC reported that they received 3 million calls from people requesting information that they could have simply viewed on the app.
So, using the app will save you time when it comes to reviewing how much tax you have paid.
We can help you make your money even more tax-efficient
Even if you have paid the right amount of tax, you may be asking yourself: “Could I reduce my tax bill next year?”
While the answer will certainly depend on your personal circumstances, there are certainly things you can do to make your money even more tax-efficient.
Saving and investing through ISAs
One method for making your money more tax-efficient is by saving and investing through ISAs.
Each tax year, you can save and invest up to the ISA Allowance, standing at £20,000 in 2022/23. You can either save your money in a Cash ISA, invest it through a Stocks and Shares ISA, save or invest through a Lifetime ISA (LISA) if you are under the age of 40, or even lend it to others through an Innovative Finance ISA.
Crucially, money held in ISAs is considered to be tax-efficient as it is entirely free from Income Tax and Capital Gains Tax (CGT). That means you will face no tax on savings interest or investment returns that your money generates.
So, by using your entire ISA Allowance each tax year, you could limit the tax you have to pay on your wealth.
Making tax-efficient investments
Aside from ISAs, there are also certain investments that come with attractive, tax-efficient advantages. For example, investments in the Enterprise Investment Scheme (EIS) or into Venture Capital Trusts (VCTs) both offer such benefits.
By investing in companies meeting the criteria to be an EIS, you can claim 30% Income Tax relief on up to £1 million of investment, as well as on an additional £1 million if the investment above £1 million is made into “knowledge-intensive” companies. That means you could claim up to £600,000 of Income Tax relief, provided that the Income Tax relief claimed is not greater than your Income Tax bill for the tax year of investment.
You must hold your EIS shares for at least three years, and the investment must retain EIS status.
Meanwhile, you can claim 30% Income Tax relief on up to £200,000 of VCT investment, meaning you could reduce your Income Tax bill by up to £60,000.
Much like the EIS, the VCT must retain qualifying status and you must hold your investment for at least five years.
It is important to note that EIS and VCT investments are made into smaller, developing businesses, and so present a high risk of fluctuating in value or even failing entirely.
Make sure you speak to an expert and fully understand this risk before you invest.
Get in touch
If you would like help finding ways to make your money even more tax-efficient, we can help at DBL. We are expert financial planners who specialise in working with professional rugby players like you.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
Enterprise Initiative Schemes (EIS) and Venture Capital Trusts (VCT) are high-risk investments. They are typically suitable for UK-resident taxpayers who are able to tolerate increased levels of risk and are looking to invest for five years or more. Historical or current yields should not be considered a reliable indicator of future returns as they cannot be guaranteed.
Share values and income generated by the investments could go down as well as up, and you may get back less than you originally invested. These investments are highly illiquid, which means investors could find it difficult to, or be unable to, realise their shares at a value that is close to the value of the underlying assets.
Tax levels and reliefs could change and the availability of tax reliefs will depend on individual circumstances.
Do not invest unless you are prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong.
