e-mail Paul Lewis on paul@deadline.demon.co.uk
Chancellor Gordon Brown could be helping himself to money out of your savings account. If you ask nicely - on the right form - he will give it back to you. But if you do not, then he will keep it. The Inland Revenue admits to having taken about £500 million too much from about six million people over the last few years. In any other context it would be called theft. You may be one of the unwitting victims if you have savings and do not pay tax on your other income.
And the Chancellor's colleague Harriet Harman, who runs the Department of Social Security, is not much better. She is taking £100 million each year off more than 300,000 married women and giving them nothing in return. But if they act now, they can make sure they turn that money into a pension when they retire. Some could even end up paying less as well as getting more for it.
So if you have savings or you are a working married woman, read on. You could save a lot of money.
Tax on savings
When you have money in a savings account in a bank or building society it will earn interest. Interest rates vary of course, but can be as high as 7 per cent a year in some accounts. Whatever rate your money earns, the Government automatically takes a fifth of that interest in tax. It takes it off everybody, even children and other people with very low incomes who should not pay tax at all. In order to get the tax back, they must claim it. But millions do not do so and this apathy brings the Chancellor up to £100 million a year.
The people affected have money in a bank or building society and have a low income. You will be affected if
(At the time of writing we did not know what was in the March Budget - it is likely these amounts will all be a bit higher than the figures here.) If you are in one of those categories you should not be paying tax on the interest on your savings. But unless you tell the tax office, a fifth of everything your money earns will be snaffled by the Chancellor.
This system of taxing interest has been around since April 1991. So you could have been paying too much tax for up to seven years. There is just time to claim all this tax back. If you leave it until after April 6, the tax you wrongly paid in 1991/92 will be lost forever. So act now!
These rules apply to everyone − including married women, who have been treated as separate individuals by the taxman since April 1990. Many married women still have not realised that they can boost the interest on their savings by claiming back the tax they should never have paid in the first place.
What to do
Anyone who is not a taxpayer should register to have their interest paid in full without tax being deducted first - what the Inland Revenue calls paid 'gross'. Any social security benefits you get will not be affected by the extra interest received. Registering to have interest paid gross is simple. Get leaflet IR 110 from your local tax enquiry centre (look them up under Inland Revenue in the phone book) fill in the form R85 in that leaflet and send it to the tax office. This leaflet also contains a lot of useful information about tax and savings. Once you have registered, your interest will be paid in full without the deduction of income tax.
The registration only applies for the future. You will still have to claim back the tax you have already wrongly paid. To do that you need another form called R40(SP)(M). You get that - and some notes to help you fill it in - from your local tax enquiry centre. You will need proof of the tax that has been deducted. If you are lucky you will have kept the information that the bank or building society has sent you each year. But if you have thrown them away, you will have to write and get duplicates. Some bank or building societies will charge you for them.
WORKING MARRIED WOMEN
It is not just tax that is being wasted. More than 300,000 working married women are being made to pay more than £100 million a year in National Insurance contributions which give them no benefits at all. Although they pay up to £17.90 a week they get no retirement pension when they reach 60, no jobseeker's allowance if they lose their job, and no sickness benefit or incapacity benefit if they are too ill to work.
Yet most of these women could stop wasting this money and pay national insurance contributions which would give them some rights to benefits and a pension when they reach 60. The women affected work, are married (or widowed), and are in their forties or fifties. They pay a special sort of national insurance called 'reduced rate contributions'. These contributions give married women no rights to a pension of their own and were introduced after the war when most married women expected to rely on their husbands to provide for them in retirement. These married woman's contributions were abolished for new contributors in April 1977. But women who were already married and paying the reduced rate then could continue to do so. The latest figures from the Contributions Agency show just over a third of a million married women still pay the reduced rate. But it is money down the drain - it brings them no rights to any benefit at all.
Married women can change to full contributions at any time, though once you have made the change, you can never go back to the special married woman's rate. But if you do change, you start earning valuable rights to a State Earnings Related Pension. This pension is paid at 60 (or you can delay it to 65 if you want) and it is fully index-linked. This pension is paid whether or not your husband has retired and, when he does, is paid on top of any pension you may get on his contributions.
The amount of pension you earn is fairly modest - it depends on your age and how much you earn. But as an example, a woman aged 50 earning £200 a week will pay reduced national insurance contributions of £7.70 a week from April. Full national insurance contributions would be nearly double that at £14.88 a week but she would earn a pension of just over £7 a week for life from 60. So roughly speaking, by spending an extra £7 a week for the seven years before she reaches 60, she will get a pension of about £7 a week from age 60, which is index-linked and payable for life. On average that will be for another 23 years. In addition, women who change to full contributions from April and pay them for two whole tax years will have rights to jobseeker's allowance, sickness benefit, or incapacity benefit if they need them from January 2001.
Some low paid married women will benefit at once. Because of the strange way the arithmetic works, some married women pay more in 'reduced rate' contributions than they would at the full rate. Any married woman earning less than £83.25 a week pays more in the reduced rate contributions - which as explained earlier give her no benefits - than she would if she paid full rate contributions which earn her a small pension and give her other National Insurance benefits if she loses her job or falls sick.
There are some women who should not change. Anyone who earns less than £64 a week should not pay national insurance contributions anyway, so the question of changing does not arise. Women who do not intend to work and earn at least £64 a week for at least two more full tax years before they are sixty will not get any real benefits from changing. And anyone who was born before 6 April 1940 does not have enough time before they reach pension age to benefit from the higher contributions. And anyone who is contracted out of SERPS and pays into there own superannuation or pension scheme will not benefit very much from paying full contributions. But almost all other married women should make the change from April.
If you want to change, you should get leaflet CA13 (CA09 for widows) from the Post Office or a local Contributions Agency office. The quicker you change the sooner you will start earning valuable rights to a pension and other benefits. Ideally, you should get the form in by Monday April 6 so that the full rate contributions start from that date. But if you are a bit later it will not matter. You can get more information about contributions from Class 1 enquiries, Contributions Agency, Longbenton Newcastle Upon Tyne NE98 1YX.
April 1998
e-mail Paul Lewis on paul@deadline.demon.co.uk