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Top Tips on tax

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Your Money

Tips to save money on tax

There are numerous ways taxpayers can legally reduce the amount of tax they pay. For example, check your tax code each year on your payslip. If you’re on the wrong code, you may be paying too much tax.

Check you if your employer offers any salary sacrifice schemes. This means exchanging some of your taxed pay for tax-free benefits, such as pension, childcare vouchers or buying a bike through the cycle-to-work scheme.

If you’re self-employed, don’t forget to claim all your tax-deductible expenses including equipment and the running costs of a car you use for your business. An accountant can advise you on other items that are tax-deductible.

You can earn extra income tax-free by renting out a furnished room in your house using the Government’s Rent-a-Room scheme. This allows you to earn £4,250 from a lodger before paying tax on the income.

Savers can save money on tax by opening an Isa rather than a normal savings account. You can save £5,640 into a cash Isa each year and the interest is paid tax-free.

How to avoid self-assessment late filing penalties

If you need to complete a self-assessment tax return it’s important to do so by the deadline or you’re likely to be fined.

You can submit a tax return on paper or online. If you send a paper tax return for the previous year it must be received by 31 October. So the tax return for the tax year 2011-12 (which ended on 5 April 2012) must be received by 31 October 2012.

If you submit your tax return online you have until 31 January, so the deadline for 2011-12 will be 31 January 2013.

If you miss a HMRC deadline, you’ll have to pay a fine. The later you are, the more you have to pay. So it’s important to send your tax return to HMRC as soon as you can.

Even if you’re just one day late you’ll have to pay £100. Once your tax return is three months late you’ll have to pay £10 for each following day – up to a 90 day maximum of £900. This is as well as the £100 fixed penalty. Once your return is six months late you have to pay an extra £300 or 5% of the tax due, whichever is higher.

If your return is 12 months late you’ll be fined a further £300 or 5% of the tax due, whichever is the higher. In serious cases you may be asked to pay up to 100% of the tax due instead.

Stamp duty

Stamp duty – or stamp duty land tax (STLT) – is a tax paid by the buyer of property or land. How much you’ll have to pay depends on the purchase price of the property you buy.

Stamp duty is calculated as a percentage of the purchase price and the rate you’ll pay depends on which stamp duty band the purchase price falls into.

If the property costs less than £125,000 there is no stamp duty to pay. If it’s between £125,001 and £250,000 you’ll have to pay 1% stamp duty; between £250,001 and £500,000 3%, between £500,001 and £1million 4%, between £1million and £2 million 5%, and over £2million 7%.

Stamp duty is calculated on the entire property price at the appropriate rate, rather than on sliding scale. This means that if your property costs between £250,001 and £500,000 you’ll pay 3% of the purchase price, not just 3% on the portion that goes over the £250,000 threshold.

Check if you’re eligible for tax credits

Tax credits are pay-outs from the Government to support those with children or in work but with a low income. They’re paid via the tax office and anyone aged over 16 who normally lives in the UK can apply to get them.

There are two tax of tax credit: child tax credit and working tax credit. You could be eligible for one or the other, or both.

The HMRC website has a tax credits calculator where you can find out if you eligible for tax credits. You need to keep the HMRC up to date with details of your circumstances and earnings to ensure you receive the right amount of tax credits.

How to get a council tax discount

Council tax is a tax collected by local authorities for the services they provide such as road, libraries, leisure facilities, refuge collection and street cleaning.

Each property receives a bill depending on its banding which will be a letter from A to H. Which band your property falls into depends on what its value was in 1991 when the assessment was first done. Properties banded as A pay the least council tax, and H the most.

As well as the value of your house when council tax banding took place in 1991, how much you pay will depend on which local authority area you live in.

Some people may be eligible for a discount on their council tax. If you live alone, you’ll be eligible for a single person’s discount of 25% and if you are a student you do not have to pay at all. If you live with a student, you can get 25% off your bill and if you earn less than £16,000 you may be eligible for council tax benefit.

Other people that may be able to get money off their bill include disabled people, carers and the mentally ill.