The current killer combo of 2-digit inflation, insane energy bills, a weak pound, and stagnant wages is leading me to try and protect my finances as well as possible, mainly through tax optimisation (which is not tax avoidance). For this reason, in the past few weeks I have learnt many interesting things about the UK tax and financial system that I would like to share with fellow academics and anybody who, like me, is not tax savvy. Most of these tips might be entirely obvious to British people, but I’m fairly sure many foreigners will be delighted to know about them. The first two are related specifically to academia and the other tips are about financial management in general.
Disclaimer: I am NOT a financial advisor. Do not take this content as financial advice.
Tax refunds / rebates 💸
Academics, like any worker, are entitled to some specific tax refunds (known as rebates). The underlying principle is that one should not be taxed on expenses that are necessary to work. Simply put, a tax rebate works like this: If I spend £100 I have earned through my work, that amount has been taxed at 20% (or 40% for incomes above £50,000). If I am entitled to a tax rebate on that expense (e.g., I bought boots for my work as a gardener), I can get 20% (or 40%) of £100 back from the HM Revenue and Customs (HMRC), that is £20 (or £40).
Tax rebates can be claimed retroactively up to 4 years earlier. The fiscal year starts every 6th of April. As is common for British public services, the HMRC website is amazingly clear and well-structured, and most rebates can be claimed online in a few clicks. If your claim is successful, the HMRC sends checks by post a few days later.
Naturally, if the employer pays for an expense, there is no tax rebate on it. To get a tax rebate, the expense must be something that one is compelled to do to perform one’s work and that is not covered by the employer, so buying a new personal laptop, fancy books, or self-funded conference trips to nice locations aren’t usually refundable. However, the good news is that fees for a list of professional organisations and learned societies can be claimed, such as the Royal Geographical Society of which I am a member.
Interestingly, the list also includes university unions like UCU, whose fees are usually quite high. They are not reimbursed by the employer so every member is entitled to a rebate (see this form for an online claim, it takes about 5 minutes). For example, if in a fiscal year you pay £300 in union fees, you might be entitled to a rebate of between £60 and £120.
If you worked from home during the Covid-19 lockdowns, as most of us did, you are eligible to tax relief of £6 a week. If you count the weeks where you had to work from home (for most academics it was from 23 March 2020), that can easily amount to hundreds of pounds of tax relief (about £300 a year). Since the end of the lockdowns, claiming this expense has become a lot harder, particularly if working from home is a choice and not mandated by the employer.
There might also be other expenses that academics can claim, so let me know if you find any.
Royalties from publications 📚
As academics, publishing books and articles is part of our jobs. I was particularly pleased when I realised that an esteemed organisation called Authors’ Licensing & Collecting Society (ALCS) can pay royalties earned by my works. Registering for it is simple and cheap (I paid £70 to join for life), and, once you have inputted your publications, without doing anything else, you will receive yearly payments. I’m not an author of New York Times best sellers, but ALCS has been paying me a few hundred pounds every year for my pretty obscure scientific articles.
Tax-free investments with ISAs 💎
Whether one has managed to save £500 or £500,000, any capital gain from investment (such as stocks, bonds, or savings accounts) is taxed at the usual 20% or 40% rate. This tax can significantly eat into the (often meagre) profits. Luckily, the UK government offers a rather generous option called Individual Savings Accounts (ISAs). An ISA is an account where you can deposit funds and invest them totally tax free. ISAs are available in most banks for stocks and bonds, for savings (called cash ISAs), and also for children (Junior ISAs). Every year, you can add up to £20,000 to all your ISAs combined, making all of your investments essentially tax free over time.
Savings accounts at 4%+ 🎆
Given the current extremely high interest rates, savings accounts (or cash ISAs) that used to provide very low returns have suddenly become more appealing. Many financial institutions are currently offering savings accounts at 4% interest or more. In simple terms, this means that if you deposit £1,000 today for a 2-year fixed product at 4%, you will get £40 at the end of the first year, and another £40 when the product matures and the money comes back. While the money is invested, you can’t access it.
The risk of these products is extremely low (bordering on zero), as the investment is insured by the UK government up to £80,000. Too good to be true? Of course, they are still well below inflation (currently at 10%), but they are a useful tool to mitigate the loss of value of your savings, particularly if you are as risk averse as me (and you are terrified of stocks). Currently, Virgin Money offers an attractive Cash ISA (see the 2-year fixed rate), and HL Active Savings provides a very user-friendly interface to find savings accounts and invest into different banks. Although large high-street banks are usually less competitive, Barclays has a nice little product that gives a return of 5% on up to £5000 (non-ISA), if you have a current account with them. Check out the best cash ISAs here.
Tax-efficient charity donations 🙏
If you donate to charity regularly, the UK government provides a scheme called Gift Aid, which makes it more efficient both for you and the recipient of the donation. If you donate £100 through Gift Aid, the charity will get an extra 25% from the government, boosting your donation to £125, and you can get a tax rebate on £100 (as usual, £20 or £40). Most accredited charities are part of the scheme, search online “<charity name> gift aid” for information. Some employers also offer the possibility of donating every month from your salary before getting taxed, with a scheme called CAF Give As You Earn, which is even more tax efficient. Personally, I like NGOs like MSF – Médecins Sans Frontières and the Italian charity Emergency who is also active in the UK.
Getting advice 📈
The UK is a financial power and there is a massive range of operators providing financial services for all tastes and purposes. Many companies provide a free consultation to discuss your finances, and then you are free to buy their services or not. If you want to review your finances / pension / savings / mortgage situation, it is worth discussing it with professionals. For example, Nutmeg provides such consultations via phone or Zoom. This way I discovered for example that I will be entitled to a UK state pension, on top on my university pension scheme. You can easily check your state pension forecast online.
If your situation is really complex, it might be worth purchasing an actual financial review, which costs between £500 and £2000. In these reviews, the operators use fin-tech modelling tools on your data to help you understand what you might want to do long term with your money. Bearing in mind that all these companies work for their bottom line, not for yours, they do provide valuable advice, particularly for foreigners who are not familiar with all the details of the UK tax and pension system.
I hope you find this page useful! Contact me to share new tips and corrections.
Last update: October 2022
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