One of our local cafes had a chalkboard outside that amused me.
“Teach your kids about tax; buy them an ice cream and eat 20% of it!”
Tax is a necessary evil for a civilised society, but there is no reward for paying too much and a lot of penalties for paying too little. The nature of the tax system is so complex that it would be naïve to assume that you are paying the right amount without some checking, either personally or by asking an adviser.
If you are an employee and all of your income comes from one source, then it is more likely that your tax is about right as your income and tax will be assessed and paid under PAYE. BUT the system only works properly if the right tax code is being used and tax is being deducted on a cumulative basis, not” week one/month one”. To check, get out your payslip and have a look at the tax code quoted, for this tax year, 2016/2017, the most common tax code will be 1100L. For next tax year, 2017/2018 the most common code will be 1150L. If you do not have this, then you need to find out more. If it is less than this, then HMRC believe that you have more taxable income from somewhere; if it is more than this, then HMRC believe you have some allowable expenses to offset from your income.
HMRC should send you a notice of coding each time there is a significant change in your tax code. This will show you what income they believe you are getting and what allowances you have been given. Keep this document, it gives you the key to what tax you are likely to pay in the current year.
If you know it is wrong, with a tax code either more or less than 1100L, (or 1150L after April 2017), without an obvious reason, then you need to ask more questions. It is your responsibility to pay the right amount of tax, so tell HMRC when your circumstances change and make sure your code is adjusted. These days HMRC are quite helpful when you can get through, but they can be a nightmare to deal with if they believe you have underpaid tax.
Not telling them when your tax bill ought to rise can land you in serious hot water, so don’t do it. According to HMRC, most big issues are over benefits in kind, like company cars and private medical insurance.
If like me your tax affairs are more complex than one employer and “Pay As You Earn”, then you will need to do rather more research and possibly pay an adviser. There are no short cuts to paying the right amount of tax and no advantage to paying too much!
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The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.