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What you need to know before the end of the tax year

Please note: this article was published in February 2020 for the 2019/2020 tax year.

With the current tax year ending on 5 April 2020, there’s still time to make the most of your tax allowances. See how to maximise everything from your savings to your pension pot and also get your head around some of the key terms.

How to make the most of your tax allowances before the end of the tax year

Use your ISA allowance

You can save £20,000 in an Individual Savings Account (ISA) in the 2019/2020 financial year without being charged tax on any of the interest the ISA earns. You can choose to save money in one ISA or split it between a few different types – always check the amount you can save in particular ISAs, as some types have a limit.

Make the most of your junior ISA allowance

If you’ve opened a junior ISA for a child, you can save up to £4,368 in the 2019/2020 tax year without being taxed on any of the interest the ISA earns.1

Maximise your pension contribution

Most people can add up to £40,000 (or up to 100% of their earnings if they earn under £40,000 a year) to their pension pot each year, tax-free.2 If you haven’t reached this limit, you may want to consider adding more to your pension from your pre-tax income.

Keep in mind you might not be able to access this money until you’re at least 55 years old. And the maximum you can add to your pension without being taxed is a combined total of all your pension pots and includes payments made by you and your employer.

You could also look into the Inheritance Tax exemption or see if you’re eligible for marriage allowance.

Tax terminology

What is a tax code?

A tax code lets your employer or pension provider know how much Income Tax you need to pay.3 Check your tax code is correct online or by calling Her Majesty’s Revenue & Customs (HMRC).

What is emergency tax?

If HMRC doesn’t have correct or sufficient information about your income it may apply an emergency tax code. If this happens, you’ll pay tax on all your earnings above the personal allowance.4

What are tax credits?

Tax credits are extra funds given by the Government. There are two types:

  • working tax credits
  • child tax credits5

Find out if you should be receiving tax credits by contacting HMRC.

What is National Insurance?

As part of your annual tax summary, you’ll also see National Insurance (NI) contributions. If you’re over 16 and earn more than £166 a week from your employer or £6,365 a year if you’re self-employed, you’ll need to pay NI.6 These contributions go towards initiatives such as the State Pension, maternity pay and the Jobseeker’s Allowance.7

What next?

Find out more about ISAs and how to take advantage of your tax allowance.

Explore more: What is an ISA?

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