Meanwhile, in the build-up to the general election, the Labour and Conservative parties are accusing each other of secret plans to increase the taxes we pay.
Robert Browne-Clayton, chief executive at IFAP, says: "It is still too early to say what effect the general election will have, but it is clear that higher taxation is likely, no matter which party is in power.
"The amount of money paid unnecessarily to the Inland Revenue each year is staggering. Taxpayers must get their financial affairs in order before they start paying more."
The amount we waste amounts to about pounds 158 per person per year, according to IFAP's survey, carried out on its behalf by Mintel, the research organisation.
Mintel analysed data supplied by the Inland Revenue's own Personal Income Survey to arrive at its own assessment of how much unnecessary tax is paid.
Up to pounds 1.04bn is wasted by taxpayers with long-term bank and building society accounts who do not have Tessas and 5.3 million non-taxpayers who have not registered to receive gross interest;
Some pounds 867m is wasted in inheritance tax because we do not plan ahead and use a combination of tax avoidance measures to minimise our bills;
More than pounds 870m is wasted by not paying company bonuses through profit- related pay schemes, at least until 1998, when they are due to peter out over a two-year period;
A further pounds 767m is shelled out by unit and investment trust holders - and many shareholders - who do not make full use of their personal equity plan allowances. Peps allow savers to roll up profits on investments free of capital gains and income taxes;
Up to 1.4 million people, including many married couples, "mislay" an additional pounds 607m, simply by failing to claim their allowances where only one person is working;
Higher-rate taxpayers who are members of company pension schemes waste pounds 419m by not making the best use of their pension top-ups, called additional voluntary contributions (AVCs) or free-standing AVCs;
Unnecessary capital gains taxes paid by small shareholders who do not use their exemptions properly, or fail to use their CGT-exempt Peps, cost pounds 318m;
A combination of Inland Revenue error and interest and penalties incurred for late payment of tax cost up to pounds 215m;
Almost pounds 160m is paid into endowment policies by savers who do not have a friendly society policy, which would be tax-exempt up to pounds 25 a month. Higher-rate taxpayers who buy life assurance but do not use tax relief by linking it to a personal pension contribute to this amount;
Charity donations that are not made through Gift Aid, the tax-free vehicle introduced by the Government in 1987, add a further pounds 119m, while the final pounds 97m comes from investors who opt for National Savings products or gilts but fail to reclaim tax they are entitled to or choose the wrong product.
Mintel also looked at self-assessment, a reform to be introduced by the Inland Revenue in April this year. Potential pitfalls of the system include the heavy penalties likely to be levied if taxpayers fail to fill in their forms correctly and on time.
Mintel looked at a trial carried out by the Inland Revenue in Leicester in 1995, where a significant proportion of the forms were sent in late or contained errors. Based on the Leicester sample, Mintel estimates the additional unnecessary costs to be borne by the taxpayer could reach pounds 1.4bn. This is disputed by the Inland Revenue, which argues that its system has been refined in the light of the trials and is now among the simplest and easiest to understand in the worldn
For a list of three IFA Promotion-backed independent financial advisers near your home or place of work, call 0117 971 1177. However, remember that the advisers are not screened for their tax expertise. Be sure to ask them what their qualifications are.Reuse content