Tax tips

Most people should probably be able to find two or three things from this list to make their tax affairs more efficient. At the least, it should encourage you to think about the way you and your family plan your finances in the longer run. Some people will find several of the tips appropriate to them. But there has to be a financial health warning: reducing your tax bill should usually be a secondary consideration. Many people have been mis-sold investments because they allowed themselves to be dazzled by the 'tax-free' label. The less money you have, the fewer risks you should take with it. Most of the tips are in five categories:

• Tax-efficient investments

• Organising your affairs to fit your family arrangements

• Getting your full personal allowance and other entitlements

• Avoiding getting into tax trouble

• Saving money by getting your employer to provide items you would otherwise have to pay for

If you do not know much about tax

1 Make sure you get your personal allowance of £4,485. You should not be paying tax on income below this level. Fill in Inland Revenue form R85 if you have income below this amount and are having tax deducted by the bank. Ask your bank, building society or the Inland Revenue for a copy of the form.

2 Avoid paying tax on summer work or part-time jobs if you are a student and earn less in a year than your personal allowance. If you cannot give an employer the right bits of paperwork when you start, they will usually deduct tax from your pay. Unless you are very organised, you might not get round to claiming back the tax. If you cannot give the boss a P45 from a previous employer (saying how much you have earned in the year, allowing the new firm to see how much of your personal allowance you have left), you should fill in form P38(S), a declaration that you expect to earn less than the personal allowance in the year.

3 Don't get into trouble. If you are sent a tax return, you must fill it in and send it back. You can face automatic penalties of £100 if you miss the deadline for completing the form. Tax inquiry centres are usually staffed by surprisingly pleasant and helpful people who will often sit down with you and explain your situation.

4 Don't arouse the suspicions of the Inland Revenue. If you put down strange, unexplained figures on a tax return - income this year of £5,000 after earning £50,000 last year - you are effectively begging them to investigate your affairs. This is a deeply unhappy process and could cost you £1,000 for the professional help you will probably feel driven to seek. There is plenty of room on a tax return to write short explanatory notes such as, 'My income went down because I decided to travel the world for 10 months'.

5 Start thinking about the benefits of tax-efficient schemes such as pensions, especially if you are starting your career. The tax breaks on pensions mean that you only have to put in £78 yourself to get a gross contribution of £100 if you are a basic rate taxpayer and your relief of £22 is added. Added to this, you will receive a contribution from your employer if you are in a company scheme. This could bring that £100 up to £150. Since the sum will be left to grow for decades, you should find it has become a substantial fund by the time you retire. (See the points on pensions below.)

If you want to save

6 Consider an Individual Savings Account (Isa) if you are aged 18 or over. The maximum contribution is £7,000 in a tax year. There is no tax on dividends or capital growth. Isas are better for higher rate taxpayers (because it saves them a higher rate of tax), but there is still a benefit for people whose income is too low to pay tax, as the Lloyds TSB 'Tax Guide 2000/2001' explains: 'Isa managers can claim back the 10 per cent tax credit that comes with dividends and distributions paid until 5 April 2004 and add them to your account.'

7 Think about putting £25 a month into a tax-exempt Friendly society savings plan, but choose a good one: some have offered poor returns. Look at the tax-free offerings from National Savings, but remember that the returns on many of these products, particularly Savings Certificates at the moment, are poor value.

8 Switch the capital from your Tessa (tax-exempt special savings account) into a Tessa-only Isa within six months of its maturing and you can go on letting it build up tax-free interest.

If you want to gamble

9 Remember that prizes from premium bonds, the National Lottery and Gambling are tax-free, unless you are a professional gambler.

If you have children

10 Claim children's tax credit, which starts on 6 April. It is worth up to £442 a year for families with at least one child under 16 living with them at the start of the tax year. But you need to fill in a form to get it. Ring the Children's Tax Credit Helpline on 0845 300 1036.

11 Understand that your children each have their own personal tax-free allowance for income each year (£4,385 in 2000/01). But to prevent too much tax avoidance, the Revenue lets them earn only £100 a year tax-free within this allowance if the money has been given to them by their parents. It is better for grandparents to give them cash if the income could be higher than this.

12 Claim the working families' tax credit if you or your partner work more than 16 hours a week and you have one or more dependant children under 19 at home. This benefit is mainly targeted at households earning less than £20,000 a year - but some people with more can also get it, depending on their circumstances. Ring 0845 609 5000 for more information. Some families can be more than £100-a-week better off.

13 Consider asking your childminder to become a registered childminder if you qualify for the WFTC (see above). Many parents lose out if a friend or a grandparent minds their children. By using a registered minder you can be £70 better off a week with one child, or £105 better off with two or more. Telephone the National Childminding Association for more information on 0800 169 4486.

14 Think of starting a stakeholder pension in your child's name when they start in April. There is no minimum age or earnings requirement. The maximum payment a year is £3,600 gross. (See the points on pensions below.)

15 Look into the possibility of buying a house if your child needs somewhere to live at university. If you can trust them, you could buy the house in their name so that rent received from other tenants goes towards their personal allowance each year and you do not 'suffer' a cap ital gain to incur tax when you sell. They can also take advantage of the 'Rent a Room scheme' (see 'If you have rental property').

16 Set up your nanny as a 'one-person personal service company' rather than an employee. You can save £2,500 this way on a net annual income for your nanny of £11,700. (See page 6 of Cash section on 14 January 2001.) You can now be fined up to £5,000 if you pay cash in hand.

If you are married

17 Use your ability to transfer assets between spouses tax-free. There are many examples of husbands paying higher-rate tax, while the wife's personal allowance is unused. This is not efficient. If some investments were put in her name, the tax bill for the household would be reduced. Transfers of assets can be made between spouses without attracting capital gains tax.

18 Do some inheritance tax planning. (For more information, see below.) One of the great tax advantages of marriage comes only when you die! There is no inheritance tax on assets left to a spouse. Paul Falvey of Grant Thornton advises wealthy couples to leave only up to the individual IHT tax-free threshold (currently £234,000) to their children and then to leave the surplus to the spouse. 'You use up both spouses' exemptions in this way,' he says.

If you want to build up a pension

19 Understand that Pension contributions are attractive because you get tax relief as you pay in the money. A higher-rate taxpayer pays only £60 to get £100 because another £40 is added by the Government. If you can afford it and think you will be able to build up a worthwhile fund, you should seriously consider having a pension. If you have access to a company scheme, you are likely to get contributions from your employer - a valuable benefit.

20 Remember that you are far better off paying pension contributions as a higher rate taxpayer than as a basic rate taxpayer. This is because you get a top-up worth 40 per cent of your gross contribution rather than 22 per cent. So try to maximise your contributions in these circumstances. Consider making additional voluntary contributions if you are in a company scheme.

21 Take advantage of the 'carry forward' rules if you have a lot of spare cash this year, pay into a personal pension and have not made maximum pension contributions in the last six years. This facility ends on 6 April.

22 Think about starting a stakeholder pension - or opening one for your spouse, partner, child (see above) or anyone else if you are already up to the limit on pension payments. Contributions are paid net - up to a maximum net contribution of £2,808, taking you to £3,600 a year gross.

23 See that your pension scheme trustees have names and up-to-date addresses for you and your heirs. Do not forget about sums you built up in jobs you had 15 years ago. If they have your address, these schemes should contact you when you reach retirement age. You do not want all those old pension payments and tax contributions to go to waste if you are run over by a bus.

If you are an employee

24 Check your tax code. All employees receive a copy of this each year from their tax office, and it is often wrong. 'Your employer has a legal obligation to operate this, which gives you so much tax-free income a month,' says Maria Bradley of accountant Smith & Williamson.

25 Expect trouble if you have two part-time jobs. The pay as you earn scheme was designed for people with one job and often works clumsily for those with more. You could be paying too much tax, or too little. 'Take your payslips into a tax office and ask them to check if you are concerned,' says a spokesman for charity TaxAid. If you think you could be underpaying, check with an accountant or - if you can't afford one - with TaxAid (0207 624 3768).

26 Go green. Recent Budgets have introduced environmentally friendly measures, including higher taxes for those with company cars. Instead, employees can buy or lease cars themselves and accept allowances for wear and tear and running costs when using them for business travel.

27 If you have no green sympathies, remember the tax discounts you can get if you increase your company car mileage. 'If it is approaching 2,500 or 18,000 miles [a year], try to use the car for work enough to qualify for the lower tax charge,' says the Lloyds TSB 'Tax Guide 2000/2001'.

28 But if you are really green and fit, you can get the tax benefits of business bicycling. Employees can claim capital allowances, and so much per mile if they use their own bicycle for travel between home and work and, energy levels permitting, between one workplace and another. The provision of a cycle and helmet by an employer can be tax free. Ask first - bikes can be expensive these days.

29 Try saving tax and Getting fit at the same time. 'Under certain circumstances there is no taxable benefit on the provision of sporting or recreational facilities provided by an employer,' says Andrew Tailby-Faulkes of Smith & Williamson. 'A lifelong subscription to Champneys [health club] is excluded as the employer must provide the physical facilities per se .'

30 Remember that if you are a bean counter and pay your subscription to the Institute of Chartered Accountants yourself, you can set that cost against tax. The Inland Revenue has a long list of bodies where subscriptions can be treated like this. It will not save you a fortune but with many chartered accountants' subscriptions costing £161 a year, you could save £65 if you are a higher-rate taxpayer. (You cannot claim if your employer pays for you.)

31 'Donations to charity administered by an employer or freely by an employee are usually tax advantageous,' says Maria Bradley. The charity also gets a top-up equal to the basic rate of tax, and higher-rate taxpayers can claim back the 18 per cent difference between basic and higher rate tax.

32 'move house!' advises Andrew Tailby-Faulkes. 'Up to £8,000 of removal expenses paid to you by your employer will be free of tax.'

33 Remember that the provision of computers is tax-free up to prescribed limits, which are currently £2,000 for any type, including laptops.

34 Ask your employer to provide you with another tax-free benefit - a company mobile phone. Then you can also save money by getting rid of your own.

35 Think about lunch. After all that cycling, the provision of Luncheon Vouchers by your boss has a 15p per day tax exemption.

36 Persuade your employer to set up an Inland Revenue approved share option scheme. Some employees have ended up with lump sums of £20,000 this way.

37 Ask your employer for an interest-free season ticket loan. If the sum you borrow is less than £5,000, you will not be taxed for receiving a 'benefit in kind'. So if you borrowed £2,000 interest-free (and used it for any purpose, not just getting to work), you could easily save yourself £200 in interest that you would have paid on an overdraft, your credit card or loan arrangement.

If you are being made redundant

38 Remember that the first £30,000 of a redundancy payment is usually tax-free. Make sure that your employer structures your payment in the right way so that you receive this tax advantage (you will not usually get a tax-free payment in return for not working out your notice).

39 Think of having any excess over the £30,000 barrier paid into your pension fund if you can afford to do without that extra cash. If your employer pays the money direct, it is not taxable; if you pay, it is but you then get the tax relief on the contribution.

If you are self-employed

40 Claim expenses which are far more generous than if you were an employee. For example, self-employed people who are working from home can claim a share of the gas, electricity and other utility bills. There are no set rules, says tax adviser Sylvia Kalisch of European Media Ventures: 'But there should not be a problem so long as you can demonstrate that it is fair. If a quarter of your flat doubles up as your office, you might claim a quarter of the daytime part of your bills.'

41 If you want a computer take advantage of the currently highly favourable tax rules: you can set the whole cost against tax this year and during the next two tax years, an exemption introduced to encourage this country to become computer-literate. This exemption also applies to software and internet-enabled mobile phones.

42 Keep receipts for your travel expenses. Unlike employees, self-employed people are far more likely to be able to claim travel costs - especially if they work from home.

If you can let part of your home or another property

43 Take advantage of the Government rent a room scheme to take in a lodger and earn up to £4,250 this year tax-free.

44 Think of buying another property and taking advantage of the growing trend to buy to let. 'It can be a very good investment,' says Garry Spencer of Wilbury Financial Management in Worthing, West Sussex. You can set your mortgage payments on the property, maintenance and other expenses against tax. 'You only pay tax on the profits,' says Spencer.

45 Put your properties in your spouse's name if you are letting out more than one property and your partner pays tax at a lower tax rate than you do. But you need to be able to trust them.

46 Make sure you do not have a huge mortgage on the house you live in and a tiny one on a property that you let out. That way round, your profits on letting will be very high and so will the tax you have to pay on it. Switched the other way, your taxable profits are low.

If you are wealthy and can afford to take risks

47 Consider venture capital trusts if you want tax-free dividends and capital gains as well as 20 per cent income tax relief on your investment (up to a maximum of £100,000 in a tax year). You need to have enough money to risk the possibility of losing it if this investment goes wrong - but, according to VCT expert Mavis Seymour of BDO Stoy Hayward, these trusts have been far more reliable than they were expected to be when launched five years ago. Some have paid out very attractive returns - and the minimum investment is usually set by fund managers at £1,000. About 20 are now on the market, and they are expected to raise well over £200m between them before the tax year ends on 5 April.

48 Think about investing in enterprise investment schemes if you really have money to spare and a head for risk. EISs are far riskier than VCTs, which are regulated by the Stock Exchange. Some of the same rules apply, but you can invest £150,000 a year in EISs.

49 Start reading about the various reliefs available on capital gains tax if you think you could be liable to it in one particular year. But there are numerous ways of reducing or postponing CGT - setting gains against losses, for instance, and staggering your gains to take advantage of your CGT allowance each year. It is currently £7,200.

If you are worried about inheritance tax

50 Recognise that the IHT threshhold could catch out many families who do not regard themselves as wealthy. If your home is in your name only and its value is more than £234,000, then your estate is in line for IHT when you die. This is particularly bad news for unmarried couples living together if the property is in one name: it has often happened that the survivor has had to move out to sell the place so they can pay the tax when the original owner has died. You could own the property jointly or see a specialist financial adviser to review your IHT situation overall. Draw up a will. It will avoid problems for those left behind.

51 Think of giving away assets to qualify for the gift exemptions each year under IHT rules. But only do this if you can afford it and if you are genuinely happy to lose control of those assets. There are horror stories of parents giving away large sums to children only to see that money disappear from the family in divorce settlements. Apart from these gift exemptions - which include £5,000 from a parent to a child on marriage, gifts made regularly out of your income or up to £250 to any number of people in a year - most gifts are potentially taxable and will attract IHT if you die within seven years of making them.

52 Look into setting up a trust if you want to postpone your decision about who will get the money, and protect your investments from IHT at the same time. If you die within seven years of establishing the trust, your original capital investment into the trust will attract tax, but the capital growth will be protected against tax. And, although you cannot change your mind and take back money put into the trust, you could change the names of the beneficiaries. Trusts have to be carefully written to avoid falling into a tax loophole, so you need professional advice.

If you are broke

53 Consult the charity Taxaid if you are in trouble with the tax authorities. Its helpline is 0207 624 3768, and it is open between 10am and midday from Mondays to Thursdays. Its website is at www.taxaid.co.uk.

54 Negotiate with the Inland Revenue if you are being threatened over unpaid bills. Like anyone else, tax officials get frustrated if people do not speak to them - but they can be very co-operative if you do talk and present a sensible programme for repaying your debts.