We over paid the tax man by an estimated 10bn last year, according to IFA Promotion (IFAP) and this simply through tax payers not having the right tax codes, not maximizing personal tax allowance, not claiming tax credits, not maximizing their pension investment or savings allowances and by not understanding exactly what the individual tax payer can do to save themselves money.
If you are one of the estimated 30 million taxpayers in the country about to submit your tax return this October then there are a few things you should know before filing that could help you to be more tax efficient and save money.
1. Check your tax code and ensure you haven’t been paying too much tax. If you’re over 65 ascertain if you have been awarded the higher personal allowance. The threshold in this tax year is 6,475, but if you are over 65 this rises to 9,490. Check your tax allowance has been upgraded.
2. Get your return in early! The deadline is 31 October for paper returns and a penalty of 100 plus interest and surcharges awaits those who don’t. Online returns can be submitted on the 31 January 2010 giving you more time, security and a written acknowledgment of receipt. Be smart and register for online returns.
3. Married couples. Remember that if your spouse is paying tax on a lower level the higher earner can make a gift of up to 6035 to them reducing the rate at which that income will be taxed. Nice saving!
4. Pensions are still the most tax efficient saving method especially if you are a high earner. Whether a personal or company pension scheme, top it up when you can to maximize your tax savings. You can qualify for immediate tax relief of up to 100%of what you put in with the maximum being 235,000.00 for 08/09
5. For those of you who love a flutter, a reminder that all premium bonds, national lottery and gambling prize winnings are exempt from tax.
6. Your Individual Savings Allowance is 3600. If you don’t have that in savings this year squirrel it away for the next tax return and enjoy that tax free. For stocks and shares the threshold rises to 7200.
7. Planning on giving your home to your children? We’re in recession so house prices are reduced. It’s a good time to give assets as the inherent value of the asset is low and whilst you’ll still have to pay inheritance tax it’ll be a lot less than in five years time.
8. If you are selling off assets and are subject to Capital Gains Tax maximize your exemption. The current threshold is 9600 per individual. If you are already over this amount then further disposals that result in losses could be set against this amount.
9. If you work from home remember to claim your business expenses deducting your dedicated office space proportionate to the rent/mortgage paid along with your utilities.
10. Business start ups should remember that they can claim their business expenses prior to start up for up to 7 years prior! (Purchase dates must be indicated though.)
Whilst taxes may be on the increase you can avoid overpaying the taxman and save yourself money by being careful and prompt with your returns. It pays to consult an accountant if you’re unsure of what you can claim and a good one should save you money.