Don't overpay national insurance
You should stop paying national insurance when you reach state retirement age – 65 for a man and 60 for a woman (rising to 65 in 2015). Lots of people who work part-time after their state pension age, either for an employer or self-employed, wrongly pay NI. You can apply to HMRC for an age exception certificate if you continue working so that you don't pay NI contributions, and can claim back previous overpayments.
If you're below pension age, you may still be overpaying NI. "If you have two or more jobs, or mix a full or part-time job with some freelance work, you could be in the area of overpaying NI," says John Whiting, director of the Chartered Institute of Taxation. For example, you may have overpaid if you had more than one job and your combined earnings were more than £844 a week in the 2010-11 tax year. Find out how to reclaim at Direct.gov.uk
Get your tax code right
Some people have overpaid thousands of pounds in tax through having the wrong tax code. It's that figure on your payslip, usually three digits followed by an L, such as '725L', and it tells your employer how much to deduct from your pay packet. A 747L code means you can earn £7,475 a year tax-free. Your tax code is adjusted (downwards) for any untaxed benefits you receive from your employer, such as private health insurance. Incorrect codes – there are thought to be millions – often result when people move jobs and incorrect data is passed on.
To check you're on the right tax code, try consumer champion Martin Lewis's code checker . You can claim back up to six years' overpaid tax, although this will drop to four years very soon.
Older people should check they are receiving their higher personal allowance. The allowance rises from £7,475 to £9,940 at age 65 and £10,090 at age 75. But HMRC starts clawing back the additional allowance once your earnings exceed £24,000. It is reduced by £1 for every £2 you have over the £24,000 limit, so if, for example, you're 66 and have income of £24,500 – £500 over the limit – your age-related personal allowance is reduced by £250 to £9,690.
Claim the cost of your iPad
There are lots of things you can claim as a business expense, but HMRC will only accept what's reasonable – just because you do some freelance work from home one or two days a week, but work on an employed basis elsewhere, you can't run the entire cost of your home phone, broadband and computer purchases against your tax bill. But you can claim some.
The key, says Whiting, is "reasonable apportionment". He says HMRC objects to the phone line rental being claimed against tax when the phone is principally used for private purposes. Don't even try to claim clothes against tax, unless you have to buy specialist protective clothing for your line of business. Whiting points to the case of a female barrister who tried to claim her court attire, but was refused; HMRC takes the view that you use most clothing for warmth and decency, not for business purposes.
Use your partner
Spouses and civil partners can legally maximise the benefit of each other's personal allowance and tax band. This only works if one is paying higher rate tax (40%) and the other is on the lower rate (20%) or not earning.
Savings and investments can be transferred between couples to ensure tax is paid by the partner with the lowest tax rate. If you own a buy-to-let or holiday home, the income from letting can be paid to the partner on the lowest tax rate, potentially saving thousands of pounds. Whiting recommends that owners of buy-to-lets think of all the expenses they can claim, such as the cost of visiting and checking up on the property.
Make the most of Isas and pensions
Put any spare money into a cash Isa. This year's allowance is £5,340 a head, rising to £10,680 for shares-based Isas. A couple who each take out an Isa every year can in five years avoid tax on more than £50,000.
If you or your partner is a non-taxpayer (for example, a student) you can use form R85, available in bank branches, to ensure that interest on savings is paid gross, rather than basic-rate tax being deducted at source. You can also obtain tax relief of up to 50% on contributions into a pension.
Comments
7 January 2012 7:45AM
HOw dare you encourage people to engage in tax avoidance????? ISAs are LOOPHOLES, LOOPHOLES I tell you.
7 January 2012 10:14AM
Given that our tax and NI contributions are attributed to us by the HMRC by this thing called a "National Insurance Number" that contains information like our AGE, it is incredible that it is beyond the wit of HMRC and their computers to do this automatically.
7 January 2012 11:23AM
Would it be cynical to suggest that plenty of extra tax is collected from people who don't realise the exemption exists and so it would be against the national interest to correct this automatically?
A bit like tax credits, which could certainly be handled automatically, given that HMRC has ALL the information it needs - but recipients have to fill in forms fairly regularly and they don't even use the tax year - for some reason the tax credit year starts in the summer...
Again, calculating this automatically and paying it out automatically would cost a fortune - much better to leave those entitled to claim it in (blissful?) ignorance.
7 January 2012 11:58AM
Haha the guardian is advising people on how to do tax avoidance
Oh the irony!!
All you guardianistas LOVE handing over your cash to the govt to waste
Still, GMG is one of the biggest tax avoiders of all
So you admit it then - no-one wants to pay more tax than necessary
7 January 2012 12:08PM
I cry every time I get my wage slip. The harder you work, the more success however are the more you get taxed. Bonus time is particularly depressing as HMRC walk off with a big chunk of it almost like having a hole in your pocket.
I am considering contracting in 2012, if the markets improve, as this seems to be the only way to pay a reasonable amount of tax i.e. as my own company.
7 January 2012 1:57PM
i-Sky with my little eye an i-Pad in the library photo and a mention of an i-pad in the text.
2 points to Patrick!
7 January 2012 5:48PM
@DaiDaiv1973
Not a bad attempt at trolling but you need to be a bit more subtle ;-)
7 January 2012 7:28PM
Actually DaiDaiv1973, HMRC don't "walk off" with a chunk of anyone's wage- it goes to the Treasury. And, yes, the more you earn (if on PAYE) the more tax you pay. Rotten, eh?
7 January 2012 9:03PM
Quite right. Obviously barristers have no need for either quality
8 January 2012 6:48AM
They do, but the processing is done at the end of the tax year when a return is submitted.
8 January 2012 9:31AM
For such a small island we are taxed up to the nose. Where does all that money go, well we all know the answer...
Lets look at the housing benefit bill => £20,000,000,000.
That's a lot of money to house people, question is why are we forking our so much? I suspect a lot of these people claiming are migrants who have decided to come here and the British Government have been foolish enough to give them citizenship without think how they will fund themselves.
This country is down in the pan, very very hard now to get out of this mess, Taxes will rise in 3-4 years time to cover out asses in the bond markets.
8 January 2012 10:09PM
A question instead of a comment.
I am a higher tax payer, my wife is not.
We moved for work but unfortunately couldn't sell our house.
So now we are renting our house out and renting ourselves in our new location.
Obviously income above the interest and costs needs to be declared, but i would prefer this goes against my wife.
Does our original house need to be in joint names to enable this? currently its just registered in my name with the land registry as I owned it before we got married.
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As for the comments regarding tax avoidance. We tax avoid with pretty much every consumer decision we make - e.g. choosing to subscribe to a paper magazine over digital is tax avoidance (no VAT payable)...
9 January 2012 8:43AM
grow a pair....!!!