Every year thousands of people pay more tax than they owe, thanks largely to administrative errors or a lack of up to date information provided to HMRC. The following tips will help individuals to ensure they are paying the right amount and will avoid the often drawn out process of claiming a refund.
Know Your Code
Many people have paid thousands of pounds in extra tax simply because they have the wrong tax code.
Tax codes tell employers how much should be deducted from an employee’s pay packet. The code you have been assigned should be printed on your payslip, it usually three digits followed by the letter ‘L’.
Codes are adjusted according to income and any other taxable benefits, there are estimated to be over 1 million people in the UK on an incorrect tax code, usually the result of moving jobs or other changes in circumstances where HMRC are not informed.
Keep an Eye on Your NI
National Insurance stops being payable once you reach the state retirement age – 60 for women (depending on birthdate – plans to raise it to 65 by 2018 are in action) or 65 for men. Thousands of people who continue working in any capacity past this age also continue to pay national insurance wrongly. If this is the case overpayments can be reclaimed and an age exemption certificate obtained from HMRC.
Younger earners may also be over paying their NI, particularly those who have more than one job or mix formal employment with freelance work.
Balance Your Business Expenses
Theoretically anything could be claimed as a business expense, however, there’s a limit to what HMRC will acceptable as reasonable – for example if you occasionally work from home you’re unlikely to be able to claim entire phone and broadband costs as a business expense, but a portion of them may well be acceptable.
Get the Most from Your Marriage
Spouses and civil partners can take advantage of each other’s tax situation, this can lead to significant savings where one partner is on a higher tax band than the other.
Savings and investment can also legally be transferred between partners to ensure that they are taxed on the basis of the lowest earning partner. This includes income from rent payments, owners of buy to let properties may also be able to claim expenses such as property maintenance and related travel.
Any spare cash at the end of the month is best placed in an ISA, up to 5,340 can be deposited tax free each year, so if a couple takes one together they could save up £50,000 over 5 years without paying tax on it..