How to pay less tax in the UK as an employee or self employed

No matter whether you’re employed in a company or you’re your own boss, there is always something you can do to become more tax-efficient!

How to pay less tax in UK

How to pay less tax in the UK starts with understanding and using the tax reliefs and allowances you are legally entitled to.

Both employees and self-employed overpay simply because they do not claim available reliefs or because their tax position is not reviewed regularly.

Here are some examples:

• certain work-related expenses can qualify for tax relief even if you are employed, provided they are required for your role and not reimbursed (i.e. travel costs, professional practice fees, uniform maintenance and purchase of work equipment like personal protective equipment); 
• your personal allowance plays a central role as well, as it determines how much income you can earn tax-free each tax year.

For the 2025/26 tax year, the standard personal allowance is £12,570. This is the amount of income you can earn tax-free across different sources, including employment income, bonuses, rental income and pension income, including the State Pension.

It is important to check your tax code, as an incorrect code may result in paying too much or too little tax during the year. Reviewing your tax position regularly can help ensure you are making full use of your available allowance.

Paying less tax as an employee

Employees often overlook tax reliefs because income tax is collected automatically through PAYE, which can create a false sense of accuracy, but it does not automatically account for all individual circumstances or eligible reliefs.

However, you may still be able to claim tax relief on unreimbursed work-related expenses, provided they are:

• wholly and exclusively required for your job
• not refunded by your employer

Examples include:

• professional subscriptions approved by HMRC
• uniforms or specialist clothing
• tools or equipment required for work
• business travel costs

In most cases, you can claim relief for eligible expenses going back up to four tax years, subject to HMRC rules.

Example: Sara, employee, paid £600 per year for HMRC-approved professional subscriptions and claimed relief for the previous four tax years could receive a £480 tax refund if taxed at 20%, or £960 if taxed at 40%.

Employee tax benefits

For company benefits like using company cars, accommodation at advantageous pricing, and loans, your employer pays taxes on these benefits from your salary through the PAYE programme. 

How much you pay depends on the benefits you use, but your employer will work that out for you: check your payslip, or go online, to see how much tax you are paying and make sure that you update your employee benefit information regularly to avoid overpaying.

Pay less tax if you’re self-employed

Self-employed individuals are responsible for calculating and reporting their own tax through Self Assessment.

You may deduct some allowable business expenses from your profits, reducing the amount of income subject to tax:

• office costs
• travel expenses
• professional services
• equipment used for business purposes

Accuracy is essential. Incorrect or aggressive claims can lead to penalties. Many self-employed workers choose to work with an accountant or financial adviser to ensure compliance.

Example: Jim is a self-employed consultant earning £45,000 who claims £6,000 in legitimate expenses for equipment, software, travel and professional fees, he reduces taxable profits to £39,000, saving £1,200 in income tax at the 20% rate before National Insurance.

Cut tax on your savings

You are given a tax free allowance on the interest that your savings accrues each year, depending on your other income. 

You may earn up to £5,000 of savings interest tax-free if your other income is low enough. Example: the allowance is reduced when other income, such as your wages, amount to more than your personal allowance. If  you qualify for personal allowance and your income is over £17,570 during the fiscal year, you aren’t eligible to receive the starting rate allowance for savings.

For the 2025/26 tax year:

• Basic rate taxpayers can earn up to £1,000 tax-free
• Higher rate taxpayers up to £500
• Additional rate taxpayers (highest tax bracket) do not receive this allowance

Cut your investments tax bill
You can cut down on the capital gains taxes you pay on your investment earnings by making the best use of your capital gains tax allowance. 

The allowance threshold for the current tax year for capital gains is £12,300, over which point you must pay taxes on your earnings. 

Opening a Stocks and Shares ISA can be a good way for you to maximise the tax savings on the returns you receive from your investments. The allowance for Stocks and Shares ISA taxes is higher compared to your personal allowance, set at £20,000 for the 2025/2026 UK tax year.

In order to maximise your capital gains tax allowance, think strategically about when and how much of your assets you sell from your investment portfolio: capital gains are taxed according to your income, paying a more advantageous tax rate at a lower income tax bracket. So if you know that you will be moving to the next tax bracket, and you want to sell some shares, do so while you are still in the more advantageous tax bracket.

Transferring assets to a spouse or civil partner can be legitimate tax planning, as transfers are generally CGT-free.

However, temporary transfer of ownership of the asset to your spouse or partner for liquidation constitutes tax evasion, meaning that the asset and cash received from selling is legally their property in the case of separation.

Example: Joseph is an investor who realises a £20,000 gain on shares held outside an ISA who could sell £12,300 worth in one tax year and the remaining £7,700 in the next, paying no Capital Gains Tax at all by using two annual allowances instead of triggering a tax bill.

Save on property income tax

If you let property, make sure that you are claiming all the deductions that you are eligible for as a landlord! You may be able to deduct some of the costs associated with managing the property, such as commuting to and from the property, safety inspections, or agency fees. 

Even utility expenses due during void periods (periods in which the property is unoccupied) can be claimed as a letting expense.

Tax savings for older people

Pension income is taxable, including the State Pension.

However, individuals whose only income is the State Pension are currently protected from paying income tax through administrative adjustments, despite the State Pension exceeding the personal allowance.Once you reach the age in which you are eligible to start taking money out of your pension pot, 25% of the income that you receive in pension payments is tax-free, while the rest is subject to tax according to the tax bracket you fall under, though there is pension tax relief for high earners.

Charity tax savings

Charitable gifts made through the Gift Aid scheme provide for tax relief to the tune of 20%, but you will be asked to provide evidence of your donations at the end of the fiscal year, so make sure that you keep all the relevant documentation. 

Bequeathing money or assets to charity are also exempt from inheritance tax, since once they are made, they no longer constitute part of your estate.

Key takeaways

• Tax efficiency starts with understanding allowances and the relevant tax year
• Employees and self-employed workers have different reliefs and obligations
• ISAs and pensions remain core tools for long-term tax planning
• Pension income is taxable, but tax-free cash is subject to limits
• Legitimate tax planning is allowed, artificial schemes are not
• Tax rules can change so regular reviews are essential

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