This piece first appeared in Saga Magazine in June 2013
The text here may not be identical to the published text  

TAX TIPS 2013

Pay less tax – or even claim some back with these timely tax tips.

TAX CODE
Earnings and pensions are taxed using a ‘tax code’ from HM Revenue & Customs. The code tells the employer or pension payer how much tax to deduct before passing on the balance.

Tax codes are a way of collecting tax not assessing it and many are wrong. The code is worked out from your annual tax free allowance which is £9440 this year for anyone born 6 April 1948 or later. Normally it will just be the first three digits of the allowance – so 944L is a very common code (ignore the letters). Older people can get a higher allowance of £10,500 or £10,660. But if your taxable income is above £26,100 this tax year you will not get the full age related allowance and above about £28,500 it will be the same £9440 allowance of younger people.

A pensioner’s tax code is formed by deducting their state pension from their tax allowance. That gives the net amount they can have tax free. So it will probably have three digits beginning with a 4 or a 3 followed by P or Y. The frozen tax allowance and rising state pension will mean a lower coe this year and hence more tax due on other income.

When you get your tax code check that the amount of state pension and the arithmetic correct. There is a guide to checking your tax code on the website www.litrg.org.uk

TAX-FREE SAVINGS
If you have savings, tax of 20% is automatically deducted from the interest, even if you are a non-taxpayer. If your income is too low to pay tax then tell the bank or building society to pay it gross without deducting tax using form R85 www.hmrc.gov.uk/forms/r85.pdf. You can claim for past years back to 2009/10 on form R40 www.hmrc.gov.uk/forms/r40.PDF You must fill in one for every tax year you claim for. If your other income apart from the interest is below your personal tax allowance but your interest takes you over that level then you may be able to get back half or more of the tax deducted from your interest. Use form R40 for that too.

If you have a spouse or partner who does not pay tax then it can be worth passing savings to them so the interest can be earned tax-free. Be careful though. The gift must be absolute and the money in their sole name. So you have to trust each other fully to do this.

If you have savings and pay tax it is better to put as much as you can into a tax-free ISA account. You can put up to £5760 into a cash ISA in 2013/14. The best rates are around 2.5% tax free and putting the money in an ISA can save up to £30 a year in tax at basic rate. If you have old cash ISAs remember to transfer them to better paying accounts as the rates always drop after a year or so. You must transfer them internally using the banks’ systems – if you take the money out then you cannot put it back into an ISA account.

WORK PERKS
If you drive your own car for work and are paid a mileage allowance of less than 45p a mile for the first 10,000 miles (and 25p per mile above that) then you should be able to claim tax relief on the balance.

Make the claim by contacting HMRC. You can claim back to 2009/10 – but before April 2011 the maximum mileage rate was 40p. You will need to fill in a form P87 for each year claimed.

Another little known work perk is claiming tax relief for keeping your uniform or distinctive clothing clean. The garments must be things you could never wear elsewhere – perhaps a company branded top or piped trousers or skirt. The standard amount is worth £12 off your tax bill but for some jobs you can claim a higher amount see http://www.hmrc.gov.uk/manuals/eimanual/eim32712.htm. The table shows the amount you can spend and the tax relief will be worth 20% (basic rate) or 40% (higher rate) of that amount.

NATIONAL INSURANCE CONTRIBUTIONS
If you work and earn more than £149 a week you will pay National Insurance contributions. But once you reach state pension age (65 for men and about 61y 7months for women at the moment) National Insurance contributions stop. Make sure they are not deducted once you reach that age. Self-employed weekly Class 2 contributions stop at pension age. But the 9% Class 4 contributions paid through self-assessment continue for the whole tax year in which you reach pension age.

TAX ALLOWANCES
Most people only get the personal tax allowance of £9440 (or slightly more if you were born before 6 April 1948). That is the amount of income you can have before tax is due, But two groups can get an extra tax allowance.

Blind person’s allowance adds £2160 to your personal tax allowance (definitions of ‘blind’ differ in England, Wales, Scotland and Northern Ireland). If you do not have enough income to use the full allowance then some or all of it can be transferred to a spouse or civil partner. Use HMRC form 575 www.hmrc.gov.uk/forms/575-t-man.pdf

A married couple or civil partners can get an extra tax allowance if either was born before 6 April 1935. The allowance is normally worth £791.50 off one partner’s tax bill but can be as low as £304 if income is high.

If you have a spare bedroom the rent from a lodger is completely tax-free if it is no more than £4250 in a year (£354 a month).

CHARITY
If you give money to charity it is always worth making a Gift Aid donation. The charity can then claim back the tax you have paid at basic rate, boosting your gift by 25%. If you pay tax at the higher 40% rate Gift Aid works exactly the same for the charity. But you can then reclaim the higher rate tax when you fill in your self-assessment form. You can claim back £25 for each £100 given. If you want to give a net £100 then make a payment for £133.33. You can reclaim £33.33 when you fill in your self-assessment tax return. The charity gets £166.67 in total.

PENSIONS
If you pay higher rate tax and are under 75 it may be worth putting more money into a pension. You get full tax relief on payments in and you can then take out a quarter of the money tax-free. The rest normally has to be used to buy an annuity. But if you already have a guaranteed pension income (including the state pension) of £20,000 a year you can withdraw the rest whenever you want, paying tax at your marginal rate. A simple cash SIPP will avoid risk.

MAKE A BIT MORE
Higher rate taxpayers with investments should consider putting some of them into an ISA so dividends are tax-free. The maximum to put in this year is £11,520 minus any new money put into a cash ISA.

MORE INFORMATION
HM Revenue & Customs taxes helpline 0845 300 0627 but it may be cheaper to call 0135 535 9022. HMRC is moving all its helplines to cheaper numbers beginning 03 shortly.

 


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