Just 8% of eligible couples have claimed the government’s new Marriage Allowance, according to official figures.
The new allowance permits married couples and civil partners to transfer £1,060 of unused personal allowance from one to the other – cutting £212 from their tax bill for 2015-16.
This isn’t the only tax break that taxpayers forget to take advantage of. Every year, many fail to claim tax breaks for landlords and the self-employed.
Thousands more end up paying too much tax because of simple errors, such as forgetting to check their tax code or failing to use their Isa allowance.
If you need help with your tax questions, or any other aspect of your finances, try Which? Money for two months for £1 and you can speak to a member of our Money Helpline team to get individual guidance.
Here, we list five of the most common mistakes that lead to people overpaying tax – and how to avoid them.
1. Ignoring Marriage Allowance
Only 333,000 couples have registered to claim Marriage Allowance, but the government estimates that as many as four million people could be eligible.
It’s not too late to take advantage of the new rules, but you can only claim if you’re a basic rate taxpayer. Those who pay higher rate (40%) and additional rate (45%) tax are not eligible.
The way it works is that transferred allowance boosts the higher income partner’s tax-free allowance for 2015-16 by £1,060, from £10,600 to £11,660. The lower income partner has £1,060 less allowance for the year, so you need to be careful they don’t end up paying tax they would otherwise avoid.
You can apply for Marriage Allowance through the gov.uk website or by telephoning HMRC.
Find out more: Marriage Allowance explained – find out if you qualify
2. Failing to use your Isa allowance
Each tax year, the government sets an annual limit for the amount of money that can be saved tax-free in an Isa. For the 2015/16 tax year, the investment limit was increased to £15,240.
You can deposit your savings into a cash or stocks and shares Isa, or both.
If you fail to use your annual Isa allowance, you may be needlessly paying tax on your savings interest.
The Which? Money Compare savings and Isa tables let you search hundreds of Isas from providers large and small to find a great savings rate based on quality of service as well as cost and benefits.
Which? Money Compare table: Instant-access cash Isas – hundreds of accounts compared
3. Using the wrong tax code
Mistakes can arise with your tax code, especially if you have more than one source of income or your working circumstances change.
You can check your tax code by contacting your tax office.
If your tax code is wrong, contact HMRC as soon as you can. If you’ve underpaid tax, you will have to pay what you owe. If you’ve overpaid tax, you’ll get a rebate.
Find out more: Tax codes explained – tips on understanding your tax code
4. Failing to claim tax-deductible expenses
Anyone who is self-employed can claim tax-deductible expenses which cut the amount of tax they pay. These include:
- running costs of a car or other vehicle used for business, including petrol, car tax, insurance, repairs and servicing
- travel and accommodation on business trips and between different places of work
- heating, lighting, cleaning, water bills, rent, business rates, general maintenance for dedicated business premises, or a proportion of such costs if you work from home
- insurance – both professional indemnity insurance premiums and public liability insurance.
Landlords who declare rental income on a self-assessment tax return can claim allowable expenses which reduce the amount they pay tax on. Tax deductible expenditure includes:
- water bills, ground rents and council tax (unless the tenant pays)
- gas and electricity bills (unless the tenant pays)
- normal repairs and decoration, but not the cost of improvements or additions to the property
- buildings and contents insurance premiums
- the interest (but not the capital) you pay on a mortgage for the purchase of the property
- what you pay for services you provide, including the wages of gardeners and cleaners
- letting or estate agent fees; the cost of advertising for a new tenant
- legal and professional fees when you renew a tenancy agreement.
5. Poor knowledge of tax reliefs
It’s possible to claim tax relief on charity donations, maintenance payments and pension contributions, as well as other types of expenditure.
See our guide on tax relief for a full list of reliefs that it may be possible to claim.
- Check the thresholds, tax rates and allowances for 2015-16
- Save more tax with tax-free savings accounts
- Our PAYE guide helps you understand your tax code
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