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
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
James May, Jeremy Clarkson and Richard Hammond in the Top Gear Patagonia Special
tv
News
Claudia Winkleman and co-host Tess Daly at the Strictly Come Dancing final
people
Arts and Entertainment
Caroline Flack became the tenth winner of Strictly Come Dancing
tvReview: 'Absolutely phenomenal' Xtra Factor presenter wins Strictly Come Dancing final
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Arts and Entertainment
The Apprentice finalists Mark Wright and Bianca Miller
tvBut who should win The Apprentice?
News
news
News
Elton John and David Furnish will marry on 21 December 2014
peopleSinger posts pictures of nuptials throughout the day
Sport
SPORT
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
Arts and Entertainment
J Jefferson Farjeon at home in 1953
booksBooksellers say readers are turning away from modern thrillers and back to golden age of crime writing
Finacial products from our partners
Property search

Simon Read: The point of having protection insurance? The right cover can help reduce your financial concerns at a time of extreme worry

In May Nicola Groves got a massive shock. The 45-year-old mother of two was told, bluntly, that she had breast cancer. "When I heard the words, 'You do have breast cancer and you are going to lose your breast', I felt as if time stood still," she says.

Mark Dampier: Maybe boom, maybe bust, but we'll probably just muddle along

It's that time again when the media looks back over the past year and forward to the next. I am reminded of an old film, The Day the Earth Caught Fire (1961). Near the end of the film a newspaper prints two headlines – which one it uses will depend on whether the world is saved or doomed.

Sainsbury’s sank 7 per cent to 234p; Tesco fell 3.2 per cent to 180.2p ; and Morrisons dropped 5 per cent to 159.9p

Money Insider: Supermarkets: the real challenger banks

The supermarket banks have always excelled at offering simple, no nonsense products, and savings accounts is another area in which they fare well

Pat and Richard Astbury at their home in Norton Canes, Staffordshire. They have benefitted from the Community Energy Project aimed at helping council tenants with their energy bills. They have had solar panels installed.

Locals in Staffordshire to save hundreds after new council-backed project to install solar panels

The sun is shining on people who struggle to heat their homes and it’s thanks to a sense of community

Gross household debt reached a historic high of around 160 per cent of combined incomes in 2007

Simon Read: Give people struggling with debt some breathing space

Struggling people need help, understanding and forbearance, not ill-thought-out pronouncements

A person walks through the City of London during the early morning rush hour in London

Simon Read: Caught up in the scandal about leaks at the regulator

You won’t find me bashing the banks for the sake of it, but sadly they’ve deserved all the criticism that’s been sent their way in recent years

There were around 750,000 victims of mobile phone theft in England and Wales last year, according to official figures

Money alert: Stolen mobile phones

Gillian Guy, chief executive of Citizens Advice: 'The injustice of shock bills for crime victims must end. The Government must stand up for consumers and cap bills from lost or stolen phones at £50'

Indian workers boil sugarcane juice to make jaggery, a traditional cane sugar, at a jaggery plant in Muradnagar, Uttar Pradesh's Ghaziabad district

Mark Dampier: A hot investment story is taking shape as India lets the light in

Stirring the pot: the Indian Government’s reforms of labour rules offer hope of a brighter future for businesses 

An AA patrol man helping a woman whose scooter had broken down.

Bargain hunter: Whisk up those leftovers instead of just throwing them in the bin

Knight of the road, look out: you’ve got a new rival 

How to raise money for charity this Christmas

There are so many ways you can raise money - and awareness - for charity. Rob Griffin explains how easy it is to donate and reap financial rewards

Simon Read: The Chancellor has stamped on an unfair tax. But will the delight of homebuyers mean misery for others?

Were you surprised by the sudden reform of the rules for stamp duty on property purchases? I certainly was. I've been calling for ages for a change in the tax to make it more fair – and, at a stroke, George Osborne did just that on Wednesday in his Autumn Statement.

Santander, whose ads have been fronted by the Olympic gold medallist Jessica Ennis-Hill, was among the banks where there were potential pitfalls with shared licences

Best savings rates are not all they might seem

Consumers can sometimes think they are shopping around for a rewarding account when in one important aspect, writes Samantha Downes, they are not
The sunlit uplands: switching out of a final salary pension may seem like madness, but there could be cases where it makes sense

Gold-plated pensions – the key to retirement freedom?

With some people are weighing up whether they will be better off cashing in their final salary pension next spring, Samantha Downes asks the experts

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

    Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

    $200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

    Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

    $125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

    Sheridan Maine: Commercial Finance Manager

    Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Sheridan Maine: Regulatory Reporting Accountant

    Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Day In a Page

    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
    The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

    The 12 ways of Christmas

    We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
    Birdwatching men have a lot in common with their feathered friends, new study shows

    The male exhibits strange behaviour

    A new study shows that birdwatching men have a lot in common with their feathered friends...
    Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

    Famous diaries: Christmas week in history

    Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
    From noble to narky, the fall of the open letter

    From noble to narky, the fall of the open letter

    The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
    A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

    A Christmas ghost story by Alison Moore

    The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
    Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

    Marian Keyes

    The author on her pre-approved Christmas, true love's parking implications and living in the moment
    Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

    Bill Granger's Christmas Eve fish feast

    Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
    Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

    Rodgers fights for his reputation

    Liverpool manager tries to stay on his feet despite waves of criticism
    Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

    Amir Khan attacks the Taliban

    'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
    Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

    Michael Calvin's Last Word

    Sepp Blatter is my man of the year in sport. Bring on 2015, quick