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Tax - check your tax code and make money

Your code can unlock treasures

Check your tax code - you could claw back thousands if it's wrong.
Make sure you're getting your personal allowance.
Get the tax offices in contact with each other.
Avoid tax on your savings.
Make sure the Revenue has your correct address.
Check your tax payments yourself - get help if necessary.
Complain, complain, complain. Don't take 'no' for an answer.

Hundreds of thousands of people are losing money every year because of mistakes made by the tax office. And the terrible thing is that even if they make the mistake, you are the one who is blamed. So it's more important than ever that you do what you can to make sure your tax details are correct and that you are not paying too much.

Actually, if you do the checks now you could find that you've been paying too much tax for a few years. You can claim back up to six years of overpaid tax. So you could be in for a windfall!
Just follow our seven steps to tax success and you will be richer - or at least, protected from nasty future bills.

Step one: check your tax code

Last year, around 600,000 taxpayers were overcharged a total of £213m, and much of this was because taxpayers had the wrong tax code. So check that your coding notice makes sense and you have been put in the right category. You should be able to find the code on your latest payslip.

Right now (until 6 April 2008) people of working age have a personal allowance of £5,225 so most (though by no means all) have the numbers 522 in their code. You'll also have a letter to signify what type of taxpayer you are:

L: You get the basic personal allowance.
P: You are 65 to 74 and get the full personal allowance.
Y: You are 75 or over and get the full personal allowance.
V: You are 65 to 74, eligible for the full personal allowance and the married couple's allowance and just pay basic rate tax.
K: You get no tax-free pay or you owe money to HMRC.
T: This is an emergency tax code: HMRC needs further information, so cannot allocate another code.
BR: This is Basic Rate which you should only have if you have a second job. There's no personal allowance on this code.
DO: This is where the whole amount is charged at 40%. This is most commonly used for a second job where you are already into the 40% bracket with your first job.
NT: There is no tax is taken from your income or pension.

To calculate your code, HMRC also deducts the value of your benefits from your personal allowance. So make sure they've included any taxable benefits you get at work like a company car or private medical insurance. If they haven't included those now then you could find yourself slapped with an extra tax bill in a year or so when they suddenly realise that you owe them.

Step two: make sure you have your personal allowance

Your personal allowance shows how much income you can receive from earnings, pensions and savings before paying tax. For this tax year, which runs from 6 April 2007 to 5 April 2008, it is £5,225 for the under-65s, £7,550 for those aged 65 to 74 and £7,690 for those aged 75-plus.

The next £2,230 of income is taxed at 10%. Then the basic rate tax of 22% is charged on the next £32,370 (unless your income is from savings interest, in which case the rate is 20%). Income over £39,825 is taxed at the higher rate of 40%. Married couples where one partner was born before 6 April 1935 get a married couple's allowance of £6,285 (the over-75s get £6,365), but this is restricted to the 10% rate of tax.

If you've earned less than your allowance in a tax year but you have still been taxed, then contact your HM Revenue & Customs (HMRC) office to claim a rebate.

Step three: two sources of income? Make the two tax offices talk to each other.

If you have more than one source of income, like two part-time jobs for example, there may be two tax offices dealing with them. It's quite possible that they don't talk to each other and each has no idea about your other income. This means that you could either be being taxed twice or not at all. Obviously, if you've been taxed twice then you're owed money! Go get it - contact both tax offices and get them to sort it out between them. Sadly, if you haven't been taxed at all, that doesn't mean you can get away with it. It probably means that in a few years time you will get a big bill for the unpaid amount, so get it sorted now to avoid that shock.

Step four: avoid 'savings tax'

Savings interest (the interest you get from savings accounts, bank accounts, building society accounts etc) is taxed at 20%. If you or your children are not taxpayers, then fill in an R85 form at your bank or building society so your interest can be paid tax-free. This will boost your savings income at a stroke.

Even if you are a taxpayer, remember you're allowed to put £3,000 into a savings account every year - tax-free. There's not long to do it, though - find the best cash Isas here and apply now to make the most of your allowance this year.

Step five: give the taxman your correct address
The tax office has the wrong address for thousands of people so if you haven't heard from them for over a year, get in touch and make sure they have your current address. There are two reasons why you should do this:

They might have a nice rebate for you which they will send to you as a cheque. If they have the wrong address for you you won't get it.
You might owe them money. If they think they do then they could have been writing to you at the wrong address for years. The money you owe them will be growing and growing during that time and if you don't get in now you will get a truly nasty bill some way down the line, and possibly even a court case!

Step six: check your tax details yourself

One of the particularly annoying aspects of tax is that whatever happens, whoever actually makes a mistake, ultimately it's your responsibility. Even if the Revenue employees are negligent or mistaken, or letters get lost in the post, you are the one who takes the rap at the end.

So check, re-check and check again that your tax code, your self-assessment form and all the details about you and your tax situation are right. Do ring up HMRC as often as you like to get them to help. Generally they are very helpful if you are genuine and respectful. Make sure you make a note of phonecalls, when they were made, what was said etc, if your situation is a bit complicated. Ideally, follow up phonecalls with a letter. Keep a paper trail. If things get really difficult then it is worth hiring an accountant to take over your affairs and argue your case with the Revenue.

Step seven: complain and persist
If you are in dispute with HMRC and you believe you are right then persist, persist and persist. Generally, if you demonstrate that you are not willing to back down and you will argue your case to the end they will concede. So if you truly believe you are right, stick to your guns!

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