Reducing amount of tax paid on income

[zcacogp]

Chaps,

I'm not sure how much information I can get on this from PH'ers, as I am asking essentially for professional advice without paying a fee, but here goes ... I am interested in a comment on another thread on here which said:

sleep envy said:

Flat in Fifth said:

Timberwolf said:

Is that £2500 take-home, or before deductions?

take home. he earns 55k systems engineer but shops in Knightsbridge Harrods spuds £2/lb.

sounds like he needs a better accountant if he takes home £2.5k on £55k/yr

('Bank of Mum and Dad' thread.)

Now, I am a regular guy, earning a regular (employed) income. I pay tax at the highter rate. I pay a fair chunk into a pension scheme, and save a fair chunk as well. I am married, with a mortgage. The income tax I pay (and NI) is deducted from source - by my employer, before I get my hands on it.

I'm not too hot on financial terminology, and have heard different types of tax referred to in confusing manners ('Schedule E', I think was one of them, but could be wrong.)

Can someone explain in simple terms how I can reduce the amount of tax I pay? (If this is possible.) I am aware that I have a tax return to complete by the end of January, so advice before then would be great!

Thanks,


Oli.

[tinman0]

zcacogp said:

Can someone explain in simple terms how I can reduce the amount of tax I pay?

Earn less

[sleep envy]

Oli, my comment was in light of the fact that a take home of £2.5k/m should result in a salary of approx £40k.

He's losing £15k somewhere...


ETA - if you are employed why are you filling in a tax return?

Edited by sleep envy on Thursday 4th January 12:05

[Alex]

zcacogp said:

Can someone explain in simple terms how I can reduce the amount of tax I pay?

Don't vote Labour.

[funkyol]

sleep envy said:

Oli, my comment was in light of the fact that a take home of £2.5k/m should result in a salary of approx £40k.

He's losing £15k somewhere...

Correct. I know for a fact that £42k = just on £2400 a month take home.

The amount stated in the other thread must have been a guesstimate.

[esselte]

sleep envy said:

Oli, my comment was in light of the fact that a take home of £2.5k/m should result in a salary of approx £40k.

He's losing £15k somewhere...


ETA - if you are employed why are you filling in a tax return?

Edited by sleep envy on Thursday 4th January 12:05

I had to for a few years..don't know why,they just sent it and said I had to fill it in,I had nothing special in terms of income.At thge beginning of this year I got a letter from Mr Taxman saying I no longer had to complete a self assesment form....no logic behind it at all.

[speedy_thrills]

zcacogp said:

Can someone explain in simple terms how I can reduce the amount of tax I pay?

Establish a company that gets paid for the services you provide to it and it passes on to wherever you work, have as much in the way of assets and expenses dealt with under the company name while being its sole employee. Make sure it never makes a “profit”. I believe this only works in certain tax brackets though?

You can do a similar thing with trusts here, not sure about the UK though?

Maybe you should have a sit down with an accountant and discuss your options.

EricMc seems to come recommended, he may be able to point you in the direction of someone helpful.

Edited by speedy_thrills on Thursday 4th January 12:13

[mat205125]

For pure income tax rates compared to earnings, check this out:

www.direct.gov.uk/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/BeginnersGuideToTaxArticles/fs/en?CONTENT_ID=4015566&chk=U5MTGt&cids=Google_PPC&cre=Money&gclid=CKeBrerdxokCFRSAVgodIHcTLw

There's an NI section somewhere there too. Your company can advise your pension deduction.

Look at your pay slip, and do the sums for yourself ..... Yes the earned vs received is scandalous, but it's all the same for everyone ... get's even more depressing when you think that everything you do with your take home money contributes even more to the treasury.

[zcacogp]

sleep envy said:

Oli, my comment was in light of the fact that a take home of £2.5k/m should result in a salary of approx £40k.

Helpful, thanks. And thanks for coming on this thread as well.

sleep envy said:

ETA - if you are employed why are you filling in a tax return?

Because those nice boys and girls at HMRC are insisting I should. I ran a small company for about 3 years up to 18 months ago, so had to do my own tax returns, so I guess it is related to this.

I do know that you only get automatic basic-rate tax relief on pension contributions, so can claim the difference between the basic-rate tax and the higher-rate tax back by means of a tax return. So it'll be worth it in this respect.

Aside from this, what other (legit) means are there?

All comments about the current administration are taken well, but I'm looking for something a bit more immediate ...


Oli.

[stumartin]

esselte said:

sleep envy said:

Oli, my comment was in light of the fact that a take home of £2.5k/m should result in a salary of approx £40k.

He's losing £15k somewhere...


ETA - if you are employed why are you filling in a tax return?

Edited by sleep envy on Thursday 4th January 12:05

I had to for a few years..don't know why,they just sent it and said I had to fill it in,I had nothing special in terms of income.At thge beginning of this year I got a letter from Mr Taxman saying I no longer had to complete a self assesment form....no logic behind it at all.

I'm no personal tax specialist, but I believe HMRC waive the need for you to fill in a tax return if the clear majority of your income comes from one employment, and your employer is a compliant PAYE operator. If you start amassing a property empire, or running a sideline business of some other sort, you'll start getting that tax return in the post again.

[sleep envy]

zcacogp said:

sleep envy said:

Oli, my comment was in light of the fact that a take home of £2.5k/m should result in a salary of approx £40k.

Helpful, thanks. And thanks for coming on this thread as well.

sleep envy said:

ETA - if you are employed why are you filling in a tax return?

Because those nice boys and girls at HMRC are insisting I should. I ran a small company for about 3 years up to 18 months ago, so had to do my own tax returns, so I guess it is related to this.

I do know that you only get automatic basic-rate tax relief on pension contributions, so can claim the difference between the basic-rate tax and the higher-rate tax back by means of a tax return. So it'll be worth it in this respect.

Aside from this, what other (legit) means are there?

All comments about the current administration are taken well, but I'm looking for something a bit more immediate ...


Oli.

no probs, the only one I know of is being made redundant by your boss on Friday and being re-employed at the same company as a contractor on Monday but HMR&C don't like that one at all

[munky]

sleep envy said:

Oli, my comment was in light of the fact that a take home of £2.5k/m should result in a salary of approx £40k.

He's losing £15k somewhere...


ETA - if you are employed why are you filling in a tax return?

Edited by sleep envy on Thursday 4th January 12:05

Anyone paying higher rate tax (40%) should (probably) fill in a tax return because
a) any interest you receive on bank accounts is normally paid either gross, or net of basic rate tax and they should be paying higher rate tax
b) if you pay into a pension or FSAVC scheme you *may* be missing out on tax deductions if you don't submit a tax return (BUT this may be handled by a different tax code IF you've informed HMRC)
c) if you receive any taxable benefits from your employer (private medical cover, interest free loans, company car, blah blah) that appear on your P11D then you need to declare this on a tax return (unless your employer taxes you for these at source and your P11D is empty)
d) donations to charity made via gift aid - you won't get higher rate tax relief unless you claim them in a tax return
e) you may have other income e.g. from property rented out
f) you may have capital gains to declare

lots of reasons really

Edited by munky on Thursday 4th January 12:22

[Eric Mc]

Is your PAYE coding correct?
Do you have any taxable Benefits in Kind (company car/merdical insurance etc)?
Are you getting full tax relief on your pension contributions?
Do you make mileage claims from your emnployer and, if so, at what rate are these claims made?
Are you receiving income which is taxed at source? If so, is there a possibilty of transferring the assets generating this income (deposit accounts. shares etc) into the name of your spouse. This only works -

if you are married (not just living together)
your spouse either pays no tax or is a basic rate tax payer

You probably need to fill in a Self Assessment form because yopu are a Higher Rate Tax Payer. PAYE cannot accurately handle a person's tax affairs if they are Higher Rate tax payers. This particularly applies to individuals who have additional income outsiude of their employment (bank/building society interets, dividend income etc) or who have additional claims to make (expenses in employment, pension contributions, cahritable giving etc etc).

[zcacogp]

Eric,

As usual, the resident PH tax expert pops up. Thanks - helpful.

Is your PAYE coding correct?

I believe so. How do I find out what it should be and what it is?

Do you have any taxable Benefits in Kind (company car/merdical insurance etc)?

No. I am paid extra in lieu of a company car, and this is taxed in the same way as the rest of my salary (I believe.)

Are you getting full tax relief on your pension contributions?

I don't believe that I am - I think I only get relief from basic rate income tax paid on pension contrubutions, so claiming the higher rate income tax back on these contributions would be worth doing (see my comments in posts above.)

Do you make mileage claims from your emnployer and, if so, at what rate are these claims made?

One, in the last year, of 31 miles. This was paid back via expenses. I am guessing (a) that this is so small as to be insignificant and (b) that this would have no bearing upon tax (although I could be wrong on that last point.)

Are you receiving income which is taxed at source? If so, is there a possibilty of transferring the assets generating this income (deposit accounts. shares etc) into the name of your spouse. This only works - if you are married (not just living together) AND
your spouse either pays no tax or is a basic rate tax payer.

Only income taxed at source is my salary. I am married, by Mrs zcacogp is a higher rate tax payer as well. SO I guess this is not relevant.

You probably need to fill in a Self Assessment form because yopu are a Higher Rate Tax Payer. PAYE cannot accurately handle a person's tax affairs if they are Higher Rate tax payers. This particularly applies to individuals who have additional income outsiude of their employment (bank/building society interets, dividend income etc) or who have additional claims to make (expenses in employment, pension contributions, cahritable giving etc etc).

Good point. We give fairly heavily to charity, and I understand that this is relevant. We always do this via 'Gift Aid', which means the people we are giving to can claim the tax back. Do I need to declare this on my tax return/is it relevant?


Thanks again.


Oli.

[Eric Mc]

Standard coding for 2005/06 was 489L (£4,895) The current standard coding (2006/07) is 503L (£5,035). If your 2005/06 and 2006/07 codings are anything other than these, then the Revenue are playing around with your tax and you need to understand what they are trying to do. It can have a bearing on what you submit on your 2005/06 Self Assessment tax return.

Car Allowance is just additional salary and is taxed and NI'd in the normal way.

Claiming tax relief on pension contributions can be horrendously complicated - there are at least nine different techniques for making claims.
If the contributions are deducted from your salary at source and the PAYE is calculated on the resultant reduced salary, then you will probably have received the maximum relief available. If the contributions are made by you personally then tax relief will be deemed to have been made at the basic rate. You can make an aditional claim for Higher Rate Relief on your tax return.
The first course of action is to enquire with your employer how they process your pension contributions through the salary system.

If your employer pays you less than 40p per mile, you can claim the difference from the tax man. It's not worth it for 31 miles though.

Donations to charities under Gift Aid (and Deeds of Covenant) are relieved at the basic rate. The charity claims the tax relief - not you.
If you are a higher rate tax payer, YOU can claim tax relief on the excess between 22% and 40%.

Edited by Eric Mc on Thursday 4th January 12:54

[Bounty Hunter]

Eric Mc said:

If your employer pays you less than 40p per mile, you can claim the difference from the tax man. It's not worth it for 31 miles though.

Eric

Is this still true if you have a car allowance (paid with salary - separate on payslip) - I thought the difference was in the car allowance?

Thanks

Tom

[mrandy]

Alex said:

zcacogp said:

Can someone explain in simple terms how I can reduce the amount of tax I pay?

Don't vote Labour.

[zcacogp]

Eric,

Once again, thanks.

Standard coding for 2005/06 was 489L (£4,895) The current standard coding (2006/07) is 503L (£5,035). If your 2005/06 and 2006/07 codings are anything other than these, then the Revenue are playing around with your tax and you need to understand what they are trying to do.

How do I find out what my coding is?

It can have a bearing on what you submit on your 2005/06 Self Assessment tax return.

In what way - as in, what would I do differently?

Car Allowance is just additional salary and is taxed and NI'd in the normal way.

OK, so this is therefore not an issue, so I can ignore it (as I suspected). Thanks.

Claiming tax relief on pension contributions can be horrendously complicated - there are at least nine different techniques for making claims.
If the contributions are deducted from your salary at source and the PAYE is calculated on the resultant reduced salary, then you will probably have received the maximum relief available.

This is what is done at the moment.

The first course of action is to enquire with your employer how they process your pension contributions through the salary system.

I'll do that this afternoon - thanks.

If your employer pays you less than 40p per mile, you can claim the difference from the tax man. It's not worth it for 31 miles though.

Didn't know that, thanks for letting me know. However, as you say, I'll let it go for 31 miles ...

Donations to charities under Gift Aid (and Deeds of Covenant) are relieved at the basic rate. The charity claims the tax relief - not you. If you are a higher rate tax payer, YOU can claim tax relief on the excess between 22% and 40%.

And is there a section on the tax return to enter this information? I am guessing there is ... how do I find out how much we have given to charity? (As we make payments by standing order every month it won't be hard.) Will I ever be asked to prove this - i.e. should I ask the charities for a receipt, or if asked to prove it, will bank statements suffice? (If I need to ask for receipts, it'll be a pain in the bum!)

Thanks again.


Oli.

[GreenV8S]

sleep envy said:

Oli, my comment was in light of the fact that a take home of £2.5k/m should result in a salary of approx £40k.

He's losing £15k somewhere...

High pension contributions could account for a large part of the apparent discrepancy?

[sleep envy]

GreenV8S said:

sleep envy said:

Oli, my comment was in light of the fact that a take home of £2.5k/m should result in a salary of approx £40k.

He's losing £15k somewhere...

High pension contributions could account for a large part of the apparent discrepancy?

judging by the way he was spending I doubt pension contributions were high up the list

but I agree with your point