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12 tax tips to save you money
By Sarah Modlock
Fuel duty has gone up and we are told it is to prevent tax increases - and public spending cuts - elsewhere, for now. But VAT goes back up at the end of the year and the government has announced it will fine us for delays in paying inheritance tax. It's time to make the most of the few tax allowances we have and pay as little as possible with these 12 tax-saving tips.
1. Check your tax code
Yes, I know it's a big yawn but if you pay income tax you would be amazed at the potential for error. Up to a quarter of all PAYE (Pay As You Earn) tax codes are incorrect when issued. Your code determines how much tax you pay but it can be wrong, so it is worth checking. HMRC may have included an estimate of your unearned income that means you will pay tax on that income earlier than you would if it was assessed through your self-assessment tax return. You can ask HMRC to remove this estimated income and also correct any other errors. If you have overpaid in previous years, you might also be able to claim a refund. You can find your tax code on your payslip or any recent tax notice and you can find out how to check for errors at website Direct.gov.uk or by contacting your local tax office. If you don't correct mistakes and HM Revenue & Customs decides you have underpaid this year, it can start clawing back the extra tax through PAYE.
2. Use your personal allowances
We don't get many tax breaks but we should make the most of the few we do have. There may be a chance for you to work personal allowances to your advantage. For instance if one partner in a couple is in a lower tax band, or doesn’t pay tax at all, couples can save on income tax by shifting any savings or investments into their name. Couples should also make use of both partners’ annual capital gains tax (CGT) allowance - something which will be much more relevant when the economy is back on its feet. Personal allowances are also age-related but HMRC will not automatically make adjustments for you when you hit key birthdays so you need to take action yourself and claim back any overpayments.
In the 2009/10 tax year, people under 65 can earn up to £6,475 a year before paying income tax, rising to £9,490 between ages 65 and 74, and £9,640 from age 75.
3. Make the most of tax-free savings
You can save up to £3,600 tax-free in a cash ISA, and the remaining £3,600 tax-efficiently in stock market funds. Alternatively, you can invest the full £7,200 in equities. Couples can combine their allowances to invest a total of £14,400 a year. But once you miss a year, you cannot go back and benefit from the allowance. Make a note in your diary so that you can keep ISAs on your radar and make use of each annual allowance before it disappears. Don't forget, if you are a non-taxpayer, make sure you reclaim the 20% savings tax that is automatically deducted from any interest. Complete form R85 to receive interest free of tax, and reclaim any overpayments with form R40.
4. Check how much National Insurance you're paying
It's easy to over-pay NI if you have more than one job and especially if you carry out any work on a self-employed basis. As with other glitches, HMRC will not spot this for you so you need to tackle it yourself. Ask your accountant for advice on how to avoid overpayments and claim back anything already overpaid. On the other hand, if you have underpaid, you can buy back missing years in your National Insurance contributions to enhance your state pension. Check with the Pension Advisory Service whether it's worth you doing this on 0845 601 2923.
5. Don't pay too much council tax
It's alleged that 700,000 households have been paying too much council tax for years. Make sure you're not one of them because surprise, surprise, refunds are not automatic in cases where evaluations are found to be wrong. Check the valuation band on your property using the Valuation Office Agency: http://www.voa.gov.uk. If you're in Scotland it's the Scottish Assessors' Association site: http://www.saa.gov.uk. Find the bands of properties that share your postcode and look for properties in a lower band. Don't forget that if you're unlucky you may find that your band is pushed up. And don't forget to claim the 25% discount if you live alone.
6. Make the most of pensions tax relief
If you top-up your personal or company pension, you can claim tax relief at either 20% or 40% on your contributions, depending on your tax bracket. Even non-taxpayers can claim 20% tax relief on pension contributions. So if you put in £800, the tax relief raises it to £1,000. Higher-rate taxpayers can claim back a further £200 through their tax return, so they can boost their pension savings by £1,000 for a cost of £600. Non-earners can put £2,880 into a pension and have this boosted to £3,600.
7. Claim your child trust fund cash
If a child or grandchild in your family was born after September 1 2002, they should be eligible for the CTF (Child Trust Fund), which allows family and friends to save up to £1,200 a year tax-free on their behalf until they turn 18. The fund builds up free of tax on investment income and capital gains until the child reaches 18, when the funds can be withdrawn or rolled into a tax-free ISA. The government provides the first £250 voucher (£500 for low income families) and a similar booster at age seven. Incredibly, a quarter of families have fail to claim their CTF - how often does the government give you money for nothing?
8. Claim a tax rebate if you lose your job If you have lost your job and not found another one yet then you could be due a tax refund. Your personal allowance is divided in the monthly payments by PAYE so you can fill in form R40 to reclaim any balance.
9. Sign up for gift aid
Make sure you apply for Gift Aid before making any charitable donations, because this makes them more tax-efficient. Every £1 you give to charity through Gift Aid is increased to £1.25 by the Revenue for basic-rate taxpayers. Higher-rate taxpayers can claim additional tax relief on the gift through their tax return in the same year.
10. Avoid inheritance tax
Possibly one of the most unpopular taxes - along with council tax - this gets nastier all the time and catches many people out. Currently inheritance tax is payable on the amount above £325,000 or, if the last person in a married couple or civil partnership dies, their joint allowance of £650,000. Anything above these limits will be taxed at 40%, so the impact can be large for any individual faced with paying such a bill. While you're alive and kicking, you can give away up to £3,000 in total per tax year to as many people as you wish without it affecting your estate. A couple can give away £6,000. If you haven't used last year's exemption, you can use it this year, making a total of £12,000 for a couple. You can also give away any number of sums of £250 a year. Some people take out life assurance so that the payout covers the IHT bill. It's worth noting that recent changes mean late payment of IHT will incur a 3% interest charge - just what grieving families need. Interest was previously 1% until March 2009 when it dropped to zero. It's now set at 0.25% above Bank base rate so is likely rise again in the future.
11. Apply for tax credits
They're not just for people on the breadline; you may be surprised at who can claim them - nine out of ten families with children and millions of elderly people are eligible. Even so, every year a massive £3.7billion worth of pension credit, child tax credit and working tax credit goes unclaimed. You can contact the Tax Credit Helpline on 0845 300 3900 from 8am to 8pm seven days a week.
12. Don't miss key tax dates
HMRC is happy to fine us for late payments and they don't accept 'I didn't realise' as an excuse. Avoid unnecessary costs by making a note of key dates in your diary and being prepared:
October 2009
5th - Deadline for notifying HMRC of new sources of income or gains for 2008/09 if no tax return has been issued.
31st - Deadline for submission of paper 2008/09 self assessment returns if you require HMRC to compute your tax liability and/or if tax unpaid is to be collected by adjustment to your 2010/11 PAYE code.
December 2009
30th - Deadline for submission of 2009 Tax Return electronically if you wish to have a 2008/09 balancing payment collected through your 2010/11 PAYE code.
January 2010
31st - Deadline for submission of your online 2009 Tax Return (up to £100 penalty if your return is late).
31st - Deadline for amending 2008 Tax Return.
31st - Balancing payment of your 2008/09 liability and Capital Gains Tax for 2008/09.
31st - First payment on account for 2009/10.
February 2010
14th - Last day to request NIC deferment for 2009/10.
28th - Last day to pay any balance of 2008/09 tax and class 4 NIC to avoid an automatic 5% surcharge.
March 2010
31st - Last minute planning for tax year 2009/10. Make sure you use any Capital Gains tax and Inheritance tax annual exemptions.
April 5 2010 - end of the tax year.
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