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Newsletter issue – August 2025
Q: I was made redundant part way through the last tax year. I was a higher rate taxpayer but now live on income from my savings. What is my Personal Savings Allowance now and can I expect a tax bill?
A: As you were a higher rate taxpayer before being made redundant, you can expect to pay tax on any savings interest over £500 in the last tax year.
Depending on when you go back to work this tax year, you could remain as a basic rate taxpayer, so could earn £1,000 in savings interest tax-free. If you earn less than your personal allowance of £12,570 this tax year, you also receive the 'starting rate for savers' - an extra £5,000 tax-free allowance for savings income on top of the personal savings allowance of £1,000.
The starting rate for savers decreases by £1 for every £1 you earn over £12,570, so will disappear completely once you are earning £17,570. If you earn over £37,700 by then end of this tax year, your Personal Savings Allowance will drop to £500 again.
Q: I am a sole trader and have been looking into how to keep my tax bill as low as possible. I’ve heard about an Annual Investment Allowance (AIA) but am unsure if it relates to me. Can you advise please?
A: The AIA allows businesses to deduct the full cost of qualifying purchases (e.g. equipment, machinery, tools) from taxable profits. The current annual limit is £1 million. Eligible items include laptops, office furniture, software, and tools.
It is available for sole traders, limited companies, and partnerships (where all partners are individuals) to claim. So, this can be especially beneficial for small businesses and solopreneurs working from home or cafe's looking to keep their tax bills low whilst they establish their businesses.
How much you can claim depends on your personal tax rate and how much you spend on qualifying assets. For example, if you're a higher-rate taxpayer and spent £1,000 on new IT equipment, you could deduct the full £1,000 from your profits, saving you £400 (40% of £1,000).
You must make the claim in the same accounting period that you bought them, through your self-assessment or company tax return. Remember to keep accurate records of these purchases in case HMRC asks for evidence.
Q: I received a letter from HMRC saying I'm owed money. Does that mean I've been on the wrong tax code, or is this letter a scam?
A: HMRC has said that it is in the process of sending out four million letters between June and August, telling people they are due a tax refund. These tax calculation letters are known as a P800 form.
HMRC will always send you a letter about tax you're owed. It will not text, email or call you and use pressure tactics to make you act or hand over personal details. If this happens to you – it is a scam. HMRC usually says it will send you a cheque for the refund, but if it does ask you to reclaim online, make sure you use the correct website address – don't follow links received in emails or texts.
Most people have straightforward tax affairs and are on the standard tax code: 1257L. However, some employers may have put you on the wrong code due to an admin error, you might have left one job and started a new one in the same month and been paid by both, you might have received Jobseeker's Allowance – these are all reasons why you might be due a tax refund. You can use an online tax code calculator or speak to us to check you are on the correct tax code.
