What a waste of money

TAX PLANNING AND SAVING: three out of four adults pay too much to the Revenue. Here and on pages 18 to 21 we show how to plug the leak

Nobody likes paying tax. The thought that you might be paying more than you have to is particularly galling. But nearly 35 million people will this year pay a total of pounds 5.5bn in unnecessary tax. That is three out of every four adults each paying pounds 158 more than they need.

The overpayment of tax is not part of some altruistic bid to give the government a bit of extra spending money, it is because of financial inertia and a poor understanding of how the tax system works, according to IFA Promotion, which produced the figures as part of its campaign to encourage people to take independent financial advice.

If those figures are not sufficiently alarming IFAP says that because of the introduction of the system of tax self-assessment, 8.5 million people are going to waste an additional pounds 158 in the tax year that starts this April. That means some people will pay pounds 310 more than they should.

Everyone is allowed to arrange his or her own affairs to avoid paying tax where possible. You do not need to get involved in financial wizardry to make sure that you are not one of the three in four adults paying too much tax.

Most of IFAP's total comes from people failing to take simple tax-saving steps. In some cases the Inland Revenue does not even want the tax but it gets collected automatically because people fail to fill in the right forms, forget to claim tax back, or just do not know the options.

More than pounds 1bn, for example, is wasted by the 35 million taxpayers who have long-term bank and building society savings but leave the money in regular accounts instead of tax-free Tessa accounts. Of those people, more than 5 million have not registered to have the interest on their money paid gross, which means 20 per cent is automatically paid to the Inland Revenue.

More than pounds 750m is wasted by people with investments in unit trust or company shares who fail to make use of tax-free personal equity plans. Tax savings on dividends usually exceed management charges, even for standard-rate taxpayers.

Nearly 1.4 million people pay more than pounds 600m to the Inland Revenue when they do not have to because they misuse their "tax-free" personal allowances.

Married couples are some of the biggest losers here. The Inland Revenue did not even answer letters from married women until the mid-1970s and the additional married couple's allowance still goes automatically to the husband. But if the wife pays tax at a higher marginal rate than the husband, the couple could pay less tax between them if they decide to transfer the allowance to the wife

A failure to make proper plans for when you die means that the Inland Revenue picks up pounds 867m in inheritance that could easily have been avoided with a bit of planning. Just making a simple will can save tax and avoid unnecessary complications for your beneficiaries.

Even donations to charity are hit. According to IFAP, the Inland Revenue will keep pounds 119m of tax on money given to charity because the people making the donation did not use the Gift Aid scheme. Any donations above pounds 250 can be made free of basic-rate tax under Gift Aid.

"The amount of money paid unnecessarily to the Inland Revenue each year is staggering," says Robert Browne-Clayton, the chief executive of IFAP. "There is an absolute duty to pay any tax which is levied; but equally no obligation to pay more than is legally due. Paying the taxman more than is necessary is effectively gifting your hard-earned cash to the Exchequer."

The IFAP figures are based on some serious number crunching of the Inland Revenue's own figures by Mintel, the financial analysts. The results give an indication of where the largest amounts of tax are "wasted", though the opportunities to save tax on the individual level depend on your circumstances.

There might be some things you can do to save large amounts of tax but that would be a bad idea for other reasons. Or simple ways to save tax that are peculiar to your situation and would probably only be spotted by a professional adviser.

A single parent with a child to look after, for example, can claim the Additional Personal Allowance, which means pounds 268.50 a year less tax paid.

But in some situations the other parent can claim the tax allowance, too. "If there is more than one child and you can say they live with the father occasionally, the father can claim the allowance as well," says Gerry Hart, a tax expert with the Tax Team, a network of financial advisers. "You would need to show that the child stayed overnight on several occasions throughout the year."

To save even more tax, the father could put in a backdated claim for a maximum of six years. That would add up to more than pounds 1,600.

Even if your "child" is over 18, it is still possible to benefit from the allowance. "Many parents think that once a child has stopped full- time education, that's the end of it," Mr Hart says. "But if they are working under a training contract that lasts at least two years you can still get the allowance regardless of what the child is earning.

"We can do something to reduce the tax bill of a high percentage of people we see for the first time."

It is often the case that the money you will save from talking to an accountant or other professional adviser will cover the cost of his or her fees. But some do not even charge a fee for the initial consultation. IFAP is offering to arrange a free half-hour consultation with local independent financial advisers spread across the country.

q For a free consultation voucher and details of three participating IFAs in your area, telephone IFAP on 0117 971 1177.

News
Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Sport
Arsenal supporters gather for a recent ‘fan party’ in New Jersey
football
Sport
sportDidier Drogba returns to Chelsea on one-year deal
Arts and Entertainment
The Secret Cinema performance of Back to the Future has been cancelled again
film
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Life and Style
Balmain's autumn/winter 2014 campaign, shot by Mario Sorrenti and featuring Binx Walton, Cara Delevingne, Jourdan Dunn, Ysaunny Brito, Issa Lish and Kayla Scott
fashionHow Olivier Rousteing is revitalising the house of Balmain
News
people
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
News
BBC broadcaster and presenter Evan Davis, who will be taking over from Jeremy Paxman on Newsnight
peopleForget Paxman - what will Evan Davis be like on Newsnight?
Life and Style
fashionCustomer complained about the visibly protruding ribs
Voices
The new dawn heralded by George Osborne has yet to rise
voicesJames Moore: As the Tories rub their hands together, the average voter will be asking why they're not getting a piece of the action
Sport
Dejan Lovren celebrates scoring for Southampton although the goal was later credited to Adam Lallana
sport
News
newsComedy club forced to apologise as maggots eating a dead pigeon fall out of air-conditioning
Arts and Entertainment
Jo Brand says she's mellowed a lot
tvJo Brand says shows encourage people to laugh at the vulnerable
Life and Style
People may feel that they're procrastinating by watching TV in the evening
life
Finacial products from our partners
Property search
Sell it with flowers: competition is 'intense' for homes with outside spaces

Gardens add a tenth to the value of your home

A London estate agent yesterday put a price on having a garden. David Pollock of Greene & Co reckons it can increase a property's value by a tenth.

Spectators at the Isle of Wight music festival watch the World Cup on the big screen. Betting promotions were a feature of the tournament
Lenders have been accused of persuading vulnerable people to borrow expensive credit

Payday loan firms accused of bombarding vulnerable people with nuisance phone calls

Payday loan firms have been accused of bombarding financially vulnerable people with nuisance phone calls, after a debt charity reported that a third of its clients were plagued by the messages.

The foundation proposed that the Government sets up a scheme to help people avoid losing their homes

Mortgages: 'Homeowners could trade down to shared ownership to defuse rate rise timebomb'

A plan to defuse a “mortgage debt timebomb” when interest rates rise is published today amid warnings that 2.3m households could struggle with their repayments.

Current accounts are too costly and confusing, says CMA as it announces investigation into Britain's biggest banks

Competition regulator to investigate market where it's hard for customers to make comparisons and the big banks' charges can be set too high
All the signs have been pointing up for buy-to-let, but there are clouds on the horizon

Buy-to-let: is it a boom or a bubble fit to burst?

People borrowing to be landlords could face the same restrictions as homebuyers, with MPs voicing fears that property speculation may be overheating the market

Moment of truth for payday lenders: Watchdog plans to curb cost of short-term loans

The chief of the City watchdog, Martin Wheatley, spoke exclusively to The Independent's Simon Read about its attempts to control the worst excesses of unscrupulous high-cost credit companies

Consumers given power to choose a green deal

How would you like to be able to choose how your electricity is made and even where it come from? It may sound futuristic and fanciful but the independent supplier Co-operative Energy has made it a reality this week.

'Scrap the trap': calls for change grow as banks are told to play fair with loyal savers

City regulator says existing customers suffer worst rates

Motor insurers divided on proposals for whiplash ban

MPs want medical evidence for claims. Will this bring higher premiums?

British Gas repays £1m for mis-sold deals

British Gas was yesterday forced to pay back £1m to its customers after mis-selling them energy deals.

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Senior Risk Manager - Banking - London - £650

    £600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

    The benefits of being in Recruitment at SThree...

    £18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

    Test Analyst - UAT - Credit Risk

    £280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...

    Trainee Recruitment Consultants - Banking & Finance

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

    Day In a Page

    Evan Davis: The BBC’s wolf in sheep’s clothing to take over at Newsnight

    The BBC’s wolf in sheep’s clothing

    What will Evan Davis be like on Newsnight?
    Finding the names for America’s shame: What happens to the immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert?

    Finding the names for America’s shame

    The immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert
    Inside a church for Born Again Christians: Speaking to God in a Manchester multiplex

    Inside a church for Born Again Christians

    As Britain's Anglican church struggles to establish its modern identity, one branch of Christianity is booming
    Rihanna, Kim Kardashian and me: How Olivier Rousteing is revitalising the house of Balmain

    Olivier Rousteing is revitalising the house of Balmain

    Parisian couturier Pierre Balmain made his name dressing the mid-century jet set. Today, Olivier Rousteing – heir to the house Pierre built – is celebrating their 21st-century equivalents. The result? Nothing short of Balmania
    Cancer, cardiac arrest, HIV and homelessness - and he's only 39

    Incredible survival story of David Tovey

    Tovey went from cooking for the Queen to rifling through bins for his supper. His is a startling story of endurance against the odds – and of a social safety net failing at every turn
    Backhanders, bribery and abuses of power have soared in China as economy surges

    Bribery and abuses of power soar in China

    The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
    Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

    Highland terriers steal the show at opening ceremony

    Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
    German art world rocked as artists use renowned fat sculpture to distil schnapps

    Brewing the fat from artwork angers widow of sculptor

    Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
    BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

    BBC takes viewers back down memory lane

    The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
    Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

    Nicolas Cage shines in low-budget drama Joe

    Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
    How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

    Make your own ice lollies and frozen yoghurt

    Think outside the cool box for this summer's tempting frozen treats
    Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

    Fiesta is UK's most popular car of all-time

    Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
    10 best reed diffusers

    Heaven scent: 10 best reed diffusers

    Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
    Commonwealth Games 2014: Female boxers set to compete for first time

    Female boxers set to compete at Commonwealth Games for first time

    There’s no favourites and with no headguards anything could happen
    Five things we’ve learned so far about Manchester United under Louis van Gaal

    Five things we’ve learned so far about United under Van Gaal

    It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little