What a waste of money

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.

Start your day with The Independent, sign up for daily news emails
Suggested Topics
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search
Yorkshire Building Society is a leading player in offsets

Offset mortgages: How to save thousands of pounds and reduce the term of your home loan

Offset mortgages make even more sense when savings rates are at rock bottom

A physiotherapist helps a patient – a service one ex-employee was denied after paying for it

Questions of Cash: I've been chased for a phantom debt. What can I do to stop it haunting my credit status?

An Independent reader received a letter stating that a debt with O2 had been sold to a firm called Lowell Financial for collection

My Travel Cash card charges a punitive 'inactivity' fee of €2.50 a month

Simon Read stored the card away for 24 months, which cost him €60

Renting from a rogue landlord? It’s time to know your rights

Some 125,000 tenants have been victims of abusive landlords in the past year

This year's models: buyers have plenty of options as they try to get the money together to drive away from the dealer in a new car

Car finance options: Best way to buy a 65 plate

Sales could find another gear as the '65' registration hits the forecourts next week. Rob Griffin looks at the finance options
In too deep? Travel cover is among the benefits offered by packaged bank accounts

Claims firms blamed as complaints soar over packaged bank accounts

Many customers complained they were switched to the accounts without their knowledge

Finger on the interest rate trigger: the Bank of England

The best deals on personal loans: Peer-to-peer providers are more competitive for smaller sums

Meanwhile, high-street lenders continue to cherry-pick and be more competitive on larger loans

China stock collapse: Five things you need to know about 'Black Monday'

The market plummeted this week, losing all the gains made for the year

Which? warns sports fans about Rugby World Cup ticket scams

GetSporting.com offers deals that may be too good to be true

Could it be the time to focus on Japan? Some believe the country has no choice but to boost consumption and the economy will get back on track

Investors told to travel the world in the search for higher returns

Assets have risen in value across the board and volatility isn't going away. Rob Griffin asks where we should put our cash
As rising house prices push up demand for renting, so tenants are having to dig deeper than ever

Starter home initiative is urgently needed as rents go through the roof

Rents in England and Wales rose by 1.9 per cent in July to an average of £804

Peer-to-peer lending rates put Nisas to shame

The returns from P2P providers look more attractive than ever

Questions of Cash: Log-in problems turned eDreams booking into one-way ticket to nowhere

The company failed to provide our reader's flight ticket - or a refund

Hot property: business has been booming in estate agents this month, even though it’s the height of the summer holiday season

Heat rises for mortgage deals as UK homeowners sense a rate hike coming

The housing market should go quiet in August but instead people have been acting like cheap loans won't last. Do we really have to rush, asks Simon Read
Phones have now overtaken personal computers as the most used way of accessing the internet

Who you gonna call? The Complaints Busters

Unhappy customers have been given their own Ombudsman to help fight for them.

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

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

    £16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    Day In a Page

    The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

    They fled war in Syria...

    ...only to get stuck and sidetracked in Hungary
    From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

    Title sequences: From The Prisoner to Mad Men

    Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
    Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

    Giorgio Armani Beauty's foundations

    Sumptuous fabrics meet luscious cosmetics for this elegant look
    From stowaways to Operation Stack: Life in a transcontinental lorry cab

    Life from the inside of a trucker's cab

    From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
    Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

    Kelis interview

    The singer and sauce-maker on cooking for Pharrell
    Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

    Cameron lowered the flag for the dead king of Saudi Arabia...

    But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Humanity must be at the heart of politics, says Jeremy Corbyn
    Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

    Joe Biden's 'tease tour'

    Could the US Vice-President be testing the water for a presidential run?
    Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

    Britain's 24-hour culture

    With the 'leisured society' a distant dream we're working longer and less regular hours than ever
    Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

    The addictive nature of Diplomacy

    Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
    Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

    Fashion: Ooh, Lady Chatterley!

    Take inspiration from DH Lawrence's racy tome with equally racy underwear
    8 best children's clocks

    Tick-tock: 8 best children's clocks

    Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
    Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

    Charlie Austin: ‘If the move is not right, I’m not going’

    After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea