7 Ways to Lower or Get Out of Paying Taxes Legally

If you’re self employed or running a limited company, there are completely legal, widely used ways to reduce the tax you owe.

However, many people either don’t know about them or don’t use them properly.

With the tax threshold still frozen, more of your income is creeping into higher tax bands without you actually earning ‘more’.

Read on to learn how to get out of paying taxes legally so you can keep more of what you earn.

Key points

• Understanding how you’re taxed is essential 💼
  Whether you’re a sole trader or a limited company, the way you extract money (salary, profits, or dividends) directly affects your tax bill.
• Most tax savings come from smart income structuring and timing ⏳
  Using a mix of salary and dividends, staying below key thresholds, and spreading income across tax years can significantly reduce your overall tax burden.
• Pensions and allowances are powerful tools for high earners 👵🧓
  Pension contributions reduce taxable income and can even pull you out of higher tax bands like the 60% ‘trap’ zone.
• Claiming everything you’re entitled to matters 💷
  Legitimate business expenses, when properly tracked, reduce taxable profits immediately. Many business owners underclaim due to uncertainty, even though everyday costs are often partially deductible.
• Tax planning is easier when everything is managed in one system 🔥
  Staying compliant across invoices, expenses, VAT, Corporation Tax, and Self Assessment is complex. ANNA simplifies this by automating bookkeeping, filing returns, and keeping everything organised in one place, helping business owners stay tax-ready without the usual cost and stress of traditional accounting.

What are you taxed on?

The first step in lowering taxes is understanding how you’re taxed because many tax-saving strategies come down to how you take money out of your business.

The way you take money out of your business determines how much you’ll be taxed and how you can rearrange your money to save more on taxes.

Sole traders pay Income Tax and National Insurance on profits, while limited company owners pay:

• Corporation Tax on profits
• Income Tax on salary
• Dividend Tax on dividends

How to get out of paying taxes: 7 legal ways you should know about

Below are the most effective, legal tax-saving ways to keep more money in your pocket.

1. Maximise your Personal Allowance

The Personal Allowance (PA) is the amount of income you can earn each tax year before paying any Income Tax.

It’s set at £12,570, and the basic rate limit is £37,700, which means the higher rate threshold, with the PA added to the basic rate limit, will be £50,270 until 5th April 2028.

The PA applies to:

• Salary if you run a limited company
• Profits if you’re self employed
• Other income such as dividends

However, once your total income exceeds £100,000, your Personal Allowance starts to shrink. You lose £1 of allowance for every £2 earned above £100,000, which means that by £125,140, your PA is gone.

This creates an effective 60% tax rate in that band, far higher than most people expect.

Because the allowance is frozen, more business owners are drifting into this ‘trap’ each year.

So, if you’re approaching or are above £100,000, planning is a must:

• Increase pension contributions: Enables you to reduce your taxable income and can bring you back below £100,000
• Control timing of income: Lets you delay dividends or invoices until the next tax year if possible
• Share income with a spouse or partner: Allows you to split income and use two allowances instead of one

2. Keep income and dividends organised

If you run a limited company, how you pay yourself is one of the biggest factors affecting your overall tax bill.

Most company directors use a mix of a small salary, usually around the National Insurance (NI) threshold, and dividends for the rest of their income.

Salary is subject to Income Tax and NI, whereas dividends are taxed at lower rates and aren’t subject to NI. As a result, this combination can reduce overall tax while helping you stay compliant.

Although this method may seem more complex than just taking a high salary, it’s much more efficient because a high salary means more Income Tax, more employee NI, and more employer NI that you have to pay.

Keep in mind that dividend tax rates still apply once you exceed the allowance, and you have to pay Corporation Tax before dividends are distributed.

To optimise income and dividends method:

• Keep salary low but sufficient to maintain NI record for state pension
• Take dividends up to key tax thresholds where possible
• Avoid pushing yourself into higher tax bands unnecessarily

💡 Good to know

There’s no ‘perfect’ split that works for everyone. The goal is to balance salary and dividends in a way that minimises total tax across you personally and your company.

3. Make pension contributions

When you put money into a pension, it’s taxable as income at withdrawal once your total yearly income goes above the tax-free Personal Allowance of £12,570.

On the plus side, you can usually take up to 25% of your pension tax-free. Across all pension types, the maximum tax-free amount is currently £268,275.

Anything you withdraw above those limits is treated like regular income, so it’s taxed at your usual rate, which could be anywhere from 20% to 45% depending on how much you earn.

So, if your taxable income is lower, you may pay less income tax overall.

For example, if you earn £80,000 and put £10,000 into a pension, instead of being taxed on the full £80,000 amount, you’re effectively taxed on a lower amount of £70,000.

That can push some of your income into a lower tax band, so you keep more of it.

Each year, there’s a limit on how much you can put into pensions and still get tax relief. For the 2026/27 tax year, that limit is £60,000, but you usually can’t get tax relief on more than 100% of your earnings.

If you earn £40,000, even though the allowance is £60,000, you’ll typically only get tax relief on up to £40,000 of contributions.

On the bright side, if you didn’t use all your pension allowance in the last few years, you might be able to carry it forward and use it from the previous three tax years.

This can be useful if you have a big income year, for example, or if you receive a large bonus.

4. Claim every legitimate business expense

Some of the most common business expenses you can claim include:

• Office costs
• Travel and mileage for business trips
• Equipment, tools, and software subscriptions
• Professional fees, such as accountants or legal advice
• Marketing, ads, and website costs

If you’re spending money to run or grow your business, there’s a good chance that at least part of it is claimable.

HMRC’s rule is that the claimable part refers only to expenses used exclusively for business purposes.

Some expenses are 100% business-related, such as software or advertising, so you can claim the full amount. Others are for both personal and business uses, such as your phone or the internet, especially if you work from home.

In those cases, you can’t claim the whole cost, only the part that relates to your business.

💡 Good to know:

If you’re ever unsure about an expense, don’t ignore it. Instead, check it, track it, and keep a record.

These small claims can gradually add up and can make a noticeable difference to your tax bill.

5. Plan for Capital Gains Tax

Capital Gains Tax (CGT) is a tax charged on the profit you make when you sell an asset, such as shares, property, or even your business.

You also get an annual CGT allowance of £3,000, or £1,500 for trusts, which means a portion of your gains can be tax-free each year. Anything above that gets taxed at the relevant CGT rate.

If you’re registered for Self Assessment, you need to report your gains in your tax return if the total amount you sold the assets for was more than £50,000 for the tax year.

The tax rate that you’ll pay depends on your overall income:

• If you’re a higher or additional rate taxpayer, you usually pay 24% on your gains from April 2026
• If you’re a basic rate taxpayer, your CGT rate depends on how big your gain is and how much of your basic rate band is already used by your income, but it’s usually 18%

In addition, if you’re selling your business or even just part of it, you might not have to pay the full Capital Gains Tax rate.

Business Asset Disposal Relief (BADR) can significantly reduce the tax you pay on your gains.

Instead of paying the standard CGT rates, you could pay a lower rate on qualifying gains:

• 18% on disposals since April 2026
• 14% if the sale happened between April 2025 and April 2026
• 10% if it was before April 2025

To qualify, you need to meet the two key conditions for at least two years before the sale:

1. You must be a sole trader or in a business partnership
2. You must have owned the business for at least two years

If you’re shutting down the business, similar rules apply, but you’ll also need to dispose of the business assets within three years to qualify.

How to reduce CGT:

• Spread sales across tax years: Instead of selling everything at once, you can split disposals to use multiple years’ allowances.
• Use your spouse or civil partner: Transferring assets between spouses is usually tax-free, and it lets you use two CGT allowances instead of one.
• Offset losses: If you’ve made losses on other investments, you can use them to reduce your taxable gains.

6. Claim Business Relief for Inheritance Tax (BPR)

BPR is a way to reduce or remove inheritance tax on certain business assets.

It usually applies to:

• Shares in private or unlisted companies
• Some shares listed on smaller markets
• A business you own, whether that’s as a sole trader or in a partnership

Not all businesses qualify. For example, if a business makes most of its money from investments, such as renting out property or holding stocks, it usually won’t be eligible.

If the assets qualify, you can get 50% or 100% relief, which can be passed on either during the owner’s lifetime or in the will.

You can claim Business Relief when you’re valuing the estate by filling in both the form IHT400 (Inheritance Tax account) and the schedule IHT413 (Business or partnership interests and assets).

7. Work with your spouse or partner

If you’re married or in a civil partnership, you can spread your income. So, instead of all the income sitting with you and potentially pushing you into higher tax bands, you can:

• Make your spouse a shareholder in your limited company
• Pay dividends to both of you, rather than just yourself
• Use two Personal Allowances instead of one
• Take advantage of both basic rate bands

This can be practical if one partner earns less or isn’t using their full allowance.

For example, if you’re taking £80,000 in dividends alone, you’ll likely hit higher tax rates. But if that income is split between two people, you might both stay in lower tax bands, which means less tax overall.

For the partner scheme to be compliant:

• Your partner should actually own shares in the company
• You should pay dividends according to share ownership
• The structure should reflect real ownership, not just on paper

How can ANNA help you stay tax-ready?

ANNA is an all-in-one business app that helps you set up your company, send and chase invoices, manage your bookkeeping, and handle your tax filings, including VAT, Corporation Tax, and Making Tax Digital Self Assessment.

ANNA provides solutions to run your books, file taxes, and stay compliant for 90% less money than it would cost you to hire a traditional accountant or subscribe to accounting software.

Here’s what ANNA can do for you:

✨ Store all your documents securely and keep them easy to find

✨ Keep your bookkeeping organised and up to date around the clock

✨ Help you work out how much tax you owe in the most efficient way

✨ Prepare and file your Corporation Tax returns directly with HMRC

✨ Enable you to calculate and submit your VAT returns automatically

✨ Help you submit your Confirmation Statements to Companies House

✨ Handle your Self Assessment tax filing from start to finish

✨ Help you manage payroll if you have employees

✨ Create, send, and track invoices for you

✨ Help you prepare and file your year-end financial statements

For your first year, we’ll handle your 2025–26 tax return for free. If you’ve already filed your 2025–26 return using another provider, we’ll refund what you paid when you switch to us.

Try ANNA today to see how you can keep your taxes under control effortlessly.