Taxes are a nightmare. Let’s not pretend otherwise. Anyone who has ever had to fill in their own tax return will know the feeling of abject bewilderment and frustration which goes hand in glove with the whole sorry experience. Worse – after all that annoyance, it transpires that many of us may still be paying too much tax. It’s a far from ideal situation, and one not likely to improve when it is considered just how confusing and mystery-shrouded the UK’s tax system is to the uninitiated. With a confusing labyrinth of allowances, exemptions, additions, subtractions, and loopholes, it’s extremely hard to know what you should and should not be claiming for – even if you work in the financial office of a company. For example, many people who have chosen to stay in work over the legal retirement age are still paying National Insurance, largely because employers are often unaware that these people are now exempt from NI payments, and continue to apply it out of habit. At the end of the day, incorrect taxes could be leaving you thousands of pounds out of pocket. One of the best things you can do for your finances is to contact professionals who know the ins and outs of the tax system and can ensure that you’re paying exactly the right amount.
Changing Circumstances and Emergency Tax
Tax codes are tricky things. They have a habit of changing when:
• You’ve changed your job and your earnings have altered
• Your state benefits have changed
• Your company benefits have changed – health insurance, for example
• You’ve been put on Emergency Tax until your new tax code comes through
And it is not just your earnings and employment status which impact upon your tax code. Tax codes are worked out by adding up a number of factors, including marital status, residential status, and any disability issues. Some of these may contribute to what are known as ‘allowances’. Everyone gets a basic tax-free personal allowance, i.e. the amount of money you get to keep and spend without being taxed. What this amounts to depends largely upon your age and income. Other allowances which can be added to your basic personal allowances include:
• The Blind Person’s Allowance, which applies if you are registered blind with a local authority and are thus unable to take employment which requires eyesight,
• The Married Couple’s Allowance, which reduces your tax bill if living together as a couple either married or in a civil partnership,
• Maintenance Payments Relief, which applies if you are over a certain age, you are separated from your partner and paying them maintenance (child support etc) and need tax relief in order to keep this situation tenable.
If any of the situations mentioned above alters, or appears to alter, you may find yourself hit with an enormous amount of tax as your allowances are removed, or even given an emergency tax code (which invariably takes more rather than less money) while HMRC processes your new circumstances. Money.co.uk has a helpful guide to tax codes and reclaiming excess tax if overpaying which can be found here. However, if you’d rather not struggle through the mire of paperwork yourself, then your best bet is to call the professionals. Consult a qualified tax accountant like the people at Accounting Solutions if you think your taxable circumstances are about to change. They will be able to advise you as to the best way to proceed, and even to undertake your tax return for you in a way which will ensure that your taxes are processed efficiently and, more importantly, accurately.
Wrong Tax Codes
Even if your circumstances haven’t changed, it’s well worth checking that you’re on the right tax code. Most people will never question their tax code, which leads to millions of pounds each year going unnecessarily into HMRC’s coffers. In 2011, for example, an internal error at HMRC saw thousands of people put on the wrong tax code – the majority of whom never queried the change despite in some cases being asked to pay substantially more tax than they were used to. An accountant will be able to assess your finances and situation, and weigh this up against your tax code before telling you accurately whether or not the government has got it right.
Tax Breaks for the Self-Employed
One group who frequently fall foul of the labyrinth of confusion which is the personal tax return are the self-employed. Indeed, those who have not done an accountancy degree usually anticipate their tax returns with a morose dread – and justifiably so. The number of self-employed people who end up paying far too much tax because they are unaware of tax regulations regarding the self-employed is astonishing. For example, many self-employed people do not realise that they can offset their business expenses – travel, work clothing, equipment and so forth – off against their personal allowance and get a subsequent tax break. If you work from home, you can claim a proportion of your household bills from the tax man – including broadband rental – and can even offset the interest of your mortgage repayments. The tax office will generally allow you to reclaim any expenses which have been incurred ‘wholly and exclusively’ in the pursuance of your trade, which includes everything from bus tickets to computer systems. However, things like personal computers and household bills can be a grey area, especially if you share them with your family. If self-employed, one of the best things you can do for both yourself and your business is talk to an accountant regarding your taxes and what you can and cannot claim for. You will undoubtedly be astonished at how much you can save.
Hidden Tax Breaks for Those In The Know
Even those who pay their taxes through a PAYE code (i.e. those who are paid a salary) can get breaks of which they may well be unaware. High rate taxpayers can claim back tax on charitable donations they have made. Professional fees and some trade expenses (mileage and travel costs, for example) can also be claimed – a list of unions whose fees can be claimed back through tax can be found here. Theoretically, many employers should work out employee taxes as they go and apportion a certain amount to the tax office. However, in practice many of the minutiae such as expenses reclaiming, professional fees and so forth often get lost in the salary maelstrom, so it may be best to consult an accountant who will be able to contact HMRC directly and process your tax breaks at the source.