Have you paid too much tax? In this week's episode of the I Hate Numbers podcast, we explore the fundamental criteria shaping the UK tax system and why understanding it matters. We delve into the implications for individual taxpayers and businesses, shedding light on key tips to reclaim potentially overpaid taxes.

Understanding the UK Tax System

Two main criteria underpin the UK tax system: Ignorance is no excuse, and it's your personal responsibility. These principles place a significant burden on taxpayers to comprehend the intricacies of tax laws and fulfill their obligations diligently. Nonetheless, navigating the labyrinth of tax rules and regulations can be daunting, especially for those without financial expertise.

Impact on Taxpayers

Millions of taxpayers may unknowingly overpay taxes due to a lack of awareness regarding available reliefs and allowances. Despite this, understanding the implications of tax rules is crucial for financial well-being. Navigating the tax landscape requires diligence and attention to detail, particularly for individuals and businesses alike.

Tips for Maximizing Returns

Tip 1: Checking Your Tax Code

To ensure accuracy, it's crucial to verify your tax code. By rectifying any errors, you can potentially reclaim overpaid taxes dating back four years. Additionally, timely updates to HMRC regarding changes in circumstances are essential to avoid penalties. Furthermore, failing to make necessary adjustments could result in missed opportunities for tax savings.

Tip 2: Utilizing Marriage Allowance

Married couples or civil partners can transfer a portion of their personal allowance to reduce tax liabilities. Timely updates to HMRC regarding changes in circumstances are essential to avoid penalties. Moreover, failing to make necessary adjustments could result in missed opportunities for tax savings. Furthermore, seeking professional advice for complex matters is recommended to ensure compliance with tax laws.

Tip 3: Optimizing Self-Employed Expenses

Self-employed individuals can maximize tax returns by claiming legitimate business expenses such as home office costs and travel expenses. Reviewing and amending previous claims can lead to significant tax savings. Furthermore, seeking professional advice for complex matters is recommended to ensure compliance with tax laws. Additionally, maintaining accurate records of expenses is essential for tax purposes.

Bonus Tip: Claiming Uniform Allowances

Workers with required uniforms can benefit from flat-rate allowances for uniform-related expenses. This often-overlooked opportunity can result in substantial savings over time. Moreover, keeping detailed records of uniform-related expenses can facilitate the process of claiming allowances. Additionally, consulting with a tax professional can ensure that you maximize your entitlements.

Conclusion

In conclusion, understanding the UK tax system empowers individuals to reclaim overpaid taxes and maximize returns. Regular tax health checks and seeking professional advice for complex matters are recommended to ensure financial well-being.

Have you paid too much tax? Take control of your tax affairs and explore these practical tips to secure your financial future.

Ignorance is no excuse, and it's your responsibility. Those are two of the main criteria that frame how the UK tax system is put together. Does it matter? Why should we be concerned? Well, in this week's I Hate Numbers podcast, I'm going to explain why it does matter, those two criteria, how it impacts on individual taxpayers and businesses,

and I'm also going to share three tax tips as to how, because of that responsibility and onus on the individual and the business to be aware of what goes on around them, there may be tax in the system that's owed back to you. I'm going to outline what those three areas are and what you need to do to recoup

money that you may have overpaid.

You're listening to the I Hate Numbers podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now here's your host Mahmood Reza.

The two criteria that I mentioned at the beginning, ignorance is no excuse and it's your personal responsibility. In one respect, it's quite unfair on a taxpayer. The myriad of tax rules that are out there, the reliefs, the allowances, what the proper system should be, how you're governed by tax, is a head scratch for lots of accountants and advisors.

And if you're not financially trained, if you don't have any tax qualifications, tax experience, as I do, then you may find yourself out of sorts. The volume of legislation, the volume of rules, trying to decipher how HMRC express themselves can be a head scratch, as I said, for many people who may be fully experienced in that world.

But again, the humble taxpayer, if I can use that phrase, will find themselves at a disadvantage. What that means is that millions of people who assume that they are doing the right thing. Millions of people who think they are paying the correct level of tax, millions of people are unaware of certain reliefs, rules, and how the system is structured.

And they are going to be overpaying when that money should be staying in their bank balances. Let's look at those three tips that I mentioned earlier on. I'm going to look at the first one, and that is the area of what's called the tax code. Now, if you are an employee or in receipt of a private pension, that income that is received is going to be subject to what's called PAYE tax.

PAYE, by the way, is the acronym for Pay As You Earn. As a piece of historical reference, PAYE was introduced in 1944 to replace a system where employees were taxed typically once a year. There wasn't that regime for an employer to collect the tax from the employee on a weekly or monthly basis, or whatever the pay period actually is and when that was introduced here, there's responsibilities placed on the shoulders of the employer And responsibilities placed on the shoulders of the employee.

Now, if we fast forward, the tax system we have now, one of the essential planks for it to operate correctly is the issuing of what's called a tax code to an individual taxpayer. Let's start with a very simple scenario. In the United Kingdom, each individual is entitled to what's called a personal allowance.

That's the amount of money that that individual can have, whether that's from salary, rental income, profits, from business profits if you're a sole trader, self-employed, interest, dividends, the whole shooting match. And it says, up to a level, that money that you receive is free from income tax. The current rate is 12570, as I mentioned in earlier podcasts, that allowance is frozen for the time being.

But again, that's a conversation for another time. And I would suggest check out the previous podcast to look at something called fiscal drag. I digress slightly. Now we take that personal allowance, and that's the amount for a whole year. Now, employees do not get paid once a year. They're paid weekly, or they're paid monthly.

So what HMRC will do is to say okay, we need to take that personal allowance and we need to give that to the employer, and if somebody is paid weekly, they can work out what that weekly equivalent amount is, that's tax-free. If they're paid monthly, likewise. The employee can plug that into their system, typically, it's done through payroll these days, payroll software, and any amount over that allowance will be taxed accordingly.

Now the code, if we take that personal announcer 12570, the first thing that's done, we chop the zero off at the end. And then we add a suffix, a letter, and for most people, not all people, the letter typically will be L. And L indicates lower earner. That phrase has got a bit of history behind it. Again, a topic perhaps for another day.

So for most individuals, your tax code will be 1257L. Assuming that you've got no other job, no other income, and when that's used here, that's the correct code. And then the tax is calculated accordingly. Now here's the rub. Unfortunately, millions of people have the wrong tax code. It could be because they've changed jobs.

It could be because the employer hasn't updated it correctly. It could be that HMRC is unaware of some other circumstances going on. It could be you've left a previous job. You're still in limbo in the sense of the tax code, but for whatever the reason is, the tax code is actually going to be incorrect.

Now, unfortunately, the responsibility for making sure the tax code is correct is not on the employer, and it's not HMRC's responsibility, it's the individual taxpayer. Now, if your tax code is incorrect, more often than not, you'll be paying more tax than you should be, and that's not a good look.

Conversely, by the way, your tax code be such, you're underpaying tax, and you're going to have a bit of a nasty surprise coming out the woodwork eventually because HMRC will catch up and will find out. Now let's have a look at a situation where your tax code is incorrect, but it's actually penalising you.

So step one, check your tax code. If you check the notes in the podcast, by the way, I'll give you a link to a tax code link checker. Check HMRC. Ideally, have a personal tax account so you can check what your code should be. Now, if you discover your code is incorrect, you have time. You can go back four tax years.

Now, at the date of publishing this podcast, we're still in the 23/24 tax year. So, if you act quickly, before the 5th of April 2024, you can go back to 2019/20 to claim back any tax. And you can go back, and that's a good thing about the tax system in the UK, you can go back in time, and again, the default period is four years, to claim any tax that you've unnecessarily paid.

What that means is that could be a nice little bonus here, wending its way into your bank account. Now, just to emphasise folks, there are millions of people with the incorrect tax code. So make sure you're not one of them. And that's my first area I'd look at. Check your tax code, make sure it's correct, and make the requisite claim.

It's relatively straightforward. You can do it yourself if you've got an agent who you want to tap into for some help, by all means, ask them. What's the second area? Well, the second area I'm going to look at is something called the marriage allowance. Now, this has been covered in previous podcasts, but it's worthwhile reminding ourselves of what happens here.

Now, criteria, first of all, you've got to be married or in a civil partnership. One of you in that couple has to be paying no tax, and the other party in the relationship is paying tax, albeit at the basic rate of income tax. The basic rate of income tax is 20%, and typically that means that that person's total income is less than the higher rate limit, which is currently 50,270 pounds if you want to be precise.

So those criteria exist. What happens is the person who is not paying any tax can transfer a slice of their personal allowance - currently set at 10%. You can't vary it by the way, you either transfer 10 percent or not at all. Once you transfer that 10 percent, the recipient takes that additional allowance, adds it onto their existing personal allowance, which means they can earn more money tax-free.

Now, that is effectively worth about 250 pounds per year. If you found that you've not claimed it previously when you've been entitled, you can go back that four years, that's about a thousand pounds there. That could be lending its way into your account. What could you do with that 1000 pounds? Well, you know, you could do a lot with that.

Now, as a caveat, folks, as a sort of health warning, if your circumstances change, and you as that individual who's not earning enough to pay tax, whether you're a student, whether you're somebody who's a house person, they don't go out to work, whether it's such, the key thing is you mustn't be paying tax.

It doesn't matter what the reason behind that is, if you're not paying tax and your partner is paying the tax at 20%, you can make that transfer. If circumstances change, you need to notify HMRC accordingly because you don't want to be in a situation where you're getting penalised in future years for something you forgot to do.

So that's two key areas. Number three. This relates to people who are self-employed, brackets freelancers, entrepreneurs, whatever term you prefer. And in that situation, it's quite usual we pick up a lot of clients in that same boat who are doing their self-employed accounts, they're doing their tax returns, but there may be expenses that you're not claiming on.

So, for example, working from home, travel costs, costs of telephony, other such items. I sometimes find that people do not want to claim something because they're quite concerned that HMRC is going to take a very dim look at that. Well, if it's legitimate, if it's been incurred for business purposes, that's a good start point.

And again, if you review what you're, you've claimed previously, if you feel that you've not claimed sufficient and you've got a basis to back that up, you can amend and you can claim back the overpaid tax that you've made in previous periods. Obviously, weigh up the potential tax that you might get back against the time and energy, and potentially paying your accountant or advisor to help you with that review,

that retrospective claim. If you're somebody who does it on a DIY basis, then it's your time you need to take into account. Now that's three tips I said I was going to share, and it's too exciting. I'm going to share one more before we start to draw to a conclusion. Now, if you are somebody who has a work uniform, I'm not talking about casual gear that looks very stylish, but if it's a work uniform based,

then, you are allowed to claim a flat rate for that uniform. HMRC publish a schedule of allowances that they give to people in particular sectors, particular trades, and 60 pounds a year is what you can claim for that uniform. That includes the cost of buying, as well as cleaning. Now, it might not seem a great deal, but for a basic rate taxpayer, that's about 12 pounds.

Over a four-year period, that's 50 quid. That will get you a decent meal, a reasonable night out, a contribution to it, nevertheless. So, folks, what have we learned? We've learned, unfortunately, the responsibility and the onus on your correct tax situation is on you, the taxpayer. You're perfectly entitled, and I would strongly recommend, if your affairs are more complex and involved, is that you seek the advice of

an accountant, somebody who's familiar with the landscape. Be careful of people who call themselves accountants who in reality are only accounted because they've done some study, but they have no practical experience. So, make sure you do that regular health check. Make sure you're aware of what you are entitled to. Make sure you don't overpay on tax that money should be in your account not in the coffers of HMRC. You've got four tips that I shared with you, that's in terms of checking your tax code, transferring your personal allowance, your marriage allowance, more specifically, uniform claims, uniform allowances, and also making sure you claim the correct level of self-employed expenses.

Folks, I hope you found this useful. I'd love it if you could share it with those who you feel would benefit. Until next time, happy tax checking. We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode.

We look forward to you joining us next week for another I Hate Numbers episode.