Calculating your tax

Calculating your tax from income tax rates to work out how much income tax you should be paying – and whether HM Revenue and Customs’ assessment is correct – can seem an impossible task. But at most all it takes is a four-step process to give you a rough-and-ready idea of what your tax bill will be. Calculating your tax invloves the three tax bands, plus an annual allowance on which no tax is paid. These figures are for the 2007-08 financial year. These three tax bands are:

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• Between £0 to £5220 no tax is paid
• On the next £2150, tax is levied at 10%
• From 2150 to 33,300, tax is levied at 22%

Here on after, tax is payable at 40%. There are however a number of methods that completing your taxes can be made easier, so it needn’t be taxing. Here are some handy tips to save money when calculating your tax:

• Tax relief on pensions - max up your pension contributions before the end of the tax year to gain generous tax relief and then benefit from the tax efficient treatment of pension funds.
• Get an ISA - individual savings accounts are great for tax breaks if you're saving or investing.

• Share the wealth - A higher rate taxpayer can save tax by transferring money into a lower earning - or • non-earning - spouse's name
• Make a will - It's the only way to be sure your loved ones don't miss out on their inheritance, and to limit the tax paid on your estate.
• Check your code - make sure you have the right tax code or you could be paying over the odds.
• Get a lodger - Many people raise extra income tax-free by renting out a room in their home.
• Don't get stamped on - You can save literally thousands if you negotiate with the person you are buying a house from to drop the price below stamp duty thresholds.
• Company car? - Fill in a form to declare it as a taxable perk. Broadly speaking, the smaller the vehicle, the less tax you will pay.
• Made a gain? - Make sure you take full advantage of your annual capital gains tax exemption limit.
• Keep it in the family - The kids get their own personal tax allowance too, and you can set up tax-efficient trusts for children or grandchildren.

Calculating your tax

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