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Tax Deduction Value Calculator
What a deduction is actually worth to you.
What it does. A deduction reduces the income you are taxed on, so it saves you the deduction multiplied by your marginal rate — not the full amount. A credit reduces the tax itself, so a credit is worth its face value. This is why a £1,000 credit beats a £1,000 deduction for everyone.
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How to use Tax Deduction Value Calculator
- Enter the deduction amount and your marginal rate.
- Add a credit for comparison if you want one.
- Read the actual saving from each.
A deduction is worth your marginal rate
Spending 1,000 on a deductible expense does not save 1,000 in tax. It removes 1,000 from taxable income, so at a 20% marginal rate it saves 200 and the expense still costs you 800 net.
That is worth knowing before buying something "for the tax write-off".
The phrase "it's a write-off" is one of the more expensive misunderstandings in small business. A deduction makes a genuinely needed purchase cheaper; it never makes an unnecessary purchase free.
Deductions against credits
| Reduces | Value of 1,000 at a 20% rate | |
|---|---|---|
| Deduction | Taxable income | 200 |
| Credit (non-refundable) | Tax owed | 1,000, capped at tax owed |
| Credit (refundable) | Tax owed | 1,000, paid even if tax is zero |
| Allowance | Taxable income | 200 — same as a deduction |
The refundable distinction matters most for people on low incomes. A non-refundable credit larger than your tax bill simply stops at your bill; a refundable one pays the difference out.
Deductions can move you across a band
Because a deduction reduces taxable income, a large one can drop part of your income out of a higher band. The saving on that portion is at the higher rate.
Pension contributions are the common example, and the effect is exactly why they are often more valuable to higher-rate taxpayers.
The saving is not a single flat rate in that case, and this tool shows the blended figure rather than pretending one rate applies to the whole deduction.
Frequently asked questions
How much is a tax deduction worth?
The deduction multiplied by your marginal rate. A 1,000 deduction at a 20% marginal rate saves 200 — the expense still costs you 800 net.
What is the difference between a deduction and a credit?
A deduction reduces the income you are taxed on, so it is worth your marginal rate. A credit reduces the tax itself, so it is worth its face value. A 1,000 credit beats a 1,000 deduction for everyone.
Is buying something for the tax write-off worth it?
Only if you needed it. A deduction makes a necessary purchase cheaper by your marginal rate; it never makes an unnecessary one free.
What is a refundable credit?
One paid out even if it exceeds your tax bill. A non-refundable credit simply stops at what you owe, which matters most for people on lower incomes.
Can a deduction save me more than my marginal rate?
It can straddle a band — a large deduction may pull income out of a higher band, saving at the higher rate on that portion. This tool shows the blended saving rather than assuming one flat rate.