Here I am, fifty four years on the planet, over fifteen of them studying, over thirty of them working in corporate business and I still can’t work out my tax code’s relation to my pay. I can get it close but, for some reason, when I apply my code to my gross salary, I can’t get it exactly match what I see as my net pay in my pay packet. This drives me rather bonkers. Is it me or is it them, the tax boffins, and how we calculate percentages? Or is it because they’ve made it so complicated to someone who, I admit, has been intimidated by numbers since Primary Six in school, when I was aged about ten years old, and a male teacher went ballistic at me for failing to grasp the “simple” arithmetic involved with fractions?
I mean, if my gross salary is £50,000 and my tax code is 1,300L (say), then – simply – I should be taxed on £37,000, shouldn’t I? As I understand it, my tax code of 1,300 equates to a sum of £13,000 that I can earn tax free. Ah, but I take a company car allowance, plus the company private health scheme. And I also contribute to a company pension. Oh, and I shouldn’t forget my National Insurance contribution either.
Of course, the pension contribution is on the positive side because that’s a taxable allowance. I get tax relief on that. Just don’t ask me where.
I was chatting to one of the finance guys at work the other day on company cars – because I was thinking of taking one with all my petrol paid – and was trying to work out what was the better deal in my wage packet, after tax. As stated above, I currently use my own car and am paid an allowance (taxable) for that.
“Oh by the way”, he said, “Are you claiming the difference between your business mileage contribution paid by the company (13p a mile) and what the taxman allows?”
“What?” I asked, perplexed.
“HMRC allows you 45p a mile for miles done on company business. So the difference, 32p, multiplied by your annual mileage – you’ll get tax relief on that.”
Really? That’s nice of the taxman to tell me, which he didn’t. This is similar to pension relief if you are a higher rate taxpayer. You’re entitled to it, but the government isn’t shouting about it. For years I failed to claim that additional twenty percent through simple ignorance. It literally cost me thousands and today, according to my mate who’s an IFA, this nets the government millions. There are plenty of people making the same mistake as I did, not claiming their full tax relief on their pension contributions. Although it’s not a “mistake” as such, just a massive and costly gap in your knowledge
What else am I missing here? What other gaps do I have? What about charity donations? I donate to charities by direct debit every month and suspect I might be due tax relief on this, but I’ve never bothered to look into it. So I can add “laziness” to “ignorance”. At least I suppose this is a “known unknown”, but what about my “unknown unknowns”!
Never look a gift horse in the mouth though, unless it’s the taxman giving you the horse – in that case, check the numbers! I am good at submitting monthly expenses backed by receipts, so my annual mileage was easy to calculate. Next I logged on to my self-assessment account, made the relevant entry (not easy to find) and entered the cost differential on my calculated business mileage. Nice one!
To be fair to HMRC, the tax rebate was in my bank account less than a week later, along with the e-mail telling me my tax code had changed as a result of my efforts. Which leads me back to the start of this blog post – my code had changed, so what would my next net wage packet be?
Needless to say, until it turns up, I’ve nothing but a rough idea, give or take fifty quid. Which, I tell myself for the thousandth time, just isn’t good enough! And, thinking about it, that was what the teacher in Primary Six used to shout at me when I couldn’t calculate four fifths of eighty three. From today’s perspective, I think I blame him more than I blame the taxman when it comes to the numbers.
sex health money death 
Pay a Chartered Accountant about £120 to complete your self assessment tax return for you every year – it will ensure that you pay exactly the right amount of tax. I am an accountant now, but I always used one until I became one – I was frightened of losing more in tax relief unclaimed or worse, penalties which start at £100 and can rapidly exceed £1000. A good Chartered Accountant will be completely up to date with the latest tax laws – the rules change constantly as HMRC wins or loses cases in the high court, and they should give you a meeting to go through your financial affairs, check that you are on the right track and advise on tax efficiencies. Steer clear of company cars – they are just not tax efficient any longer.
Anyone paying tax at 40% should really use an accountant, anyone paying 45% is losing money if they don’t – you really need a professional.
Just my thoughts….
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That’s good advice. In the past I have used Tax Assist, a franchise operation that gives you access to a CA for around £45 an hour. Which was more than adequate for my tax return and reasured me I was filling out the form correctly.
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Hi
Love the blog!
Re. the tax rebate on your business mileage, you should be able to claim for the last few years (six I think). Bit of a pain digging out the paperwork but may be worthwhile depending on your mileage.
Cheers
Gav
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Thanks Gav. Fortunately (or unfortunately) I only have a year to claim on the mileage, unlike on my pension where I missed about five years of tax relief!
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You can also claim tax relief on charitable donations if you have agreed gift aid if you are a higher rate tax payer.
https://www.gov.uk/income-tax-reliefs/charity-donations-tax-relief.
You pay Income Tax at 40% or 45%. You can claim back the difference between the tax you’ve paid on the donation and what the charity got back when you fill in your Self Assessment tax return.
If you don’t fill in a Self Assessment tax return, call HMRC to tell them about your charity donations.
An accountant will also help with complicated things like the right kind of National Insurance Contributions on any additional income. The right kind of Class 2, Class 4 NI etc is beyond me, though otherwise numerate.
Also don’t forget that professional subscriptions are tax deductible. This can be several hundred pounds or more for doctors etc.
Yours frugally, Helen
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Thanks Helen. To my shame, my charitable donations are hardly worth the effort, but I suppose every little helps. As for NI, what you outlined above just shows how complex something simple has become.
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As a startled 12 year old I was yelled at and humiliated by a teacher for not understanding why 3a x 3b = 3c. WTF? I didn’t get it and was told not to be so stupid. The next five years of school left me in a haze of what was going on and I left not knowing how to do algebra, physics, chemistry……. (I was pretty good at Latin though).
I taught myself after leaving school and now 40 years later with Masters Degrees in Accounting, Marketing and Information Technology and a career involving 6 Sigma with it’s deep diving statistics – I know it wasn’t me, it was the way they taught.
Amazing how one dickhead teacher and a system that was too inflexible to manage those that didn’t get it, can stuff one up. I doubt that I was the only one.
Fractions – pfffffft.
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I remember the fear – and it was fear – of the teacher, which just made the situation worse. I couldn’t think straight and felt I was to blame. I can still remember the classroom and the experience over forty years later, so it had quite an impression on me. And the impression was that I was pretty thick when it came to numbers, so I subsequently lived up to the expectation, despite some evidence against it.
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I totally agree – I was a stammering fool whenever I had to do things with numbers. However, it was their issue not ours though it took me a few years to get to that understanding.
Didn’t make it any less real at the time.
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A good, inspiring teacher can make the complicated simple and a and, bullying one can put you off a subject for a long time.
On the subject of mileamileage claims I found out from a CA I had when running my own business that although home to work miles can’t be claimed if you pass workplace on eligible journey you can claim even though mileage might be the exact same.
So legit visit to the office next door to yours and you can claim for example.
“Not many people know that” as the saying goes.
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