| As credit crunch continues to creep it's tentacles into | | | | fill up a form (R85), available from banks and building |
| the world finance, the last thing you would want to do | | | | societies to get interest paid free of tax. |
| is pay extra tax. | | | | You can have tax-free saving if you put money into |
| On the average, one sixth of your salary goes in | | | | an individual savings account (ISA) and index linked |
| paying income tax. By the time council tax, VAT, | | | | saving certificates. |
| excise duty and various other taxes have been | | | | On your ordinary savings account, where you pay the |
| deducted, around a third of your hard-earned money | | | | same interest rate, you would be taxed at 20percent, |
| goes to the Treasury. | | | | reducing the amount you earn to £439. If you |
| All of us know that claiming back tax is inconvenient | | | | use an ISA, you can gain an extra £110 interest |
| and time consuming. But a few simple precautions and | | | | (approx).o Give your room on rent |
| awareness can help you pay lesser tax. Here are the | | | | Sometimes you might find it tough to pay your |
| simplest ways to cut your tax bills.o Know your tax | | | | mortgage. This is a good time to keep a paying guest. |
| code | | | | Under the rent-a-room scheme, if you rent out a |
| If you pay your tax via PAYE, it is deducted in | | | | furnished room in your home and receive less than |
| response to your tax code. You can see this on your | | | | £4,250 a year, there is no need to declare this |
| monthly pay slip. When HMRC sends you your annual | | | | income on a tax return. If you earn £4,000 or |
| P60 and any coding notice, always ensure that your | | | | less in rental income each year, this goes tax-free and |
| code is correct. It is important to check your tax code | | | | will save you £800.o Make a salary sacrifice |
| if you have more than one job, you change jobs and | | | | (apparent) |
| when you reach 65 (you should get a higher tax-free | | | | You can voluntarily agree to a salary sacrifice. This |
| allowance but people normally tend to overlook). | | | | scheme means that you want to be paid less but |
| If you are aged over 65 and have an annual income | | | | would take the compensation for this by additional |
| of under £21,800 (2008-09), you can receive up | | | | contributions to your pension or by tax-free, non-cash |
| to £9,030 tax-free. If your code is incorrect, you | | | | benefits, such as childcare vouchers etc. Your tax and |
| may only get the standard tax-free allowance of | | | | national insurance (NI) bill will drop as your gross |
| £6,035. By getting your code corrected, you | | | | income is reduced.o Pension payments |
| would be paying up to £599 less tax (approx).o | | | | You are eligible to get tax relief by paying into a |
| Claim expenses | | | | pension scheme. |
| If you are self-employed, you can deduct allowable | | | | Big savings can be made by those who pay income |
| expenses from your gross profits before paying tax | | | | tax at 40 percent during their working lives and then |
| on the remaining amount. This can comprise the entire | | | | pay tax at a lower rate after they retire.o Carry |
| cost of business tours and miscellaneous expenses. | | | | forward losses |
| If you work from home you can also claim for a share | | | | If you are self-employed you can cut the amount of |
| of heating and lighting and other bills, such as water tax | | | | tax you need to pay by carrying forward losses from |
| and mortgage interest. | | | | previous years. This will help you growing any debt on |
| Buy purchasing a computer for your work, you can | | | | yourself.o Child trust fund |
| claim part of the cost. For example, if you claim for a | | | | If you transfer money to your children and this earns |
| laptop, that cost £1,000, you can cut your tax bill | | | | greater than £100 yearly interest, you will be |
| by £200.o Give to charity | | | | taxed on all the income as if it was your own. You can |
| Gifts to charity made through the tax-relief schemes | | | | avoid this by putting the money into a child trust |
| can cut your tax bill. Basic-rate taxpayers aged over | | | | fund(CTF). Interest on money in a CTF is tax-free.o |
| 65 can also benefit from charitable giving through Gift | | | | Assets transfer |
| Aid. If you are paying 40% of your income in tax, and | | | | If a married couple, or civil partners, pay tax at |
| give £200 a year to charity, you can claim | | | | different rates, they can cut their tax bill by transferring |
| £50 tax relief if you donate through Gift Aid. | | | | ownership of savings and investments. |
| Once you have received this money, you can either | | | | If you pay tax at 40 percent, you can transfer assets |
| keep the cash or donate it as an extra gift.o Avoid tax | | | | to a partner who pays at 30 percent. An equally |
| on savings | | | | effective transfer can be made between anyone who |
| On your savings, interest is normally taxed at source. | | | | pays at 30 percent and a partner who does not pay |
| However, a non-taxpayer, like a minor or an aged | | | | tax. |
| person whose income is below the tax threshold, can | | | | |