If you only do one thing…Check your tax bill

8th September 2010

For the estimated 4.3 million who have overpaid income tax and will receive an automatic refund, it's good news. For the 1.4 million who HM Revenue & Customs calculates as having under-paid its not so great.

You can check you're paying the right amount using HMRC's tax code checker

The checker was originally developed for students but while you don't have to be a student to use it, it does have its limitations. For instance, it won't work if you earn more than £100,000. You also need to get the basic personal allowance of £6,475 (2010-11 tax year) to use it and you need to be under 65, not eligible for the married person's allowance and not earn income from dividends.

If you want to have a specific question answer about your personal tax code or the amount you pay, contact your local tax office. You can find yours on the HMRC site

The under-payment loophole

Paying tax is painful enough, so suddenly finding out you owe the taxman even more, because of an error on their part is even worse. But don't panic, because even if you are one of the 1.4 million who have under-paid, you might have a fighting chance  of escaping repayment.

Thisismoney says there's a loophole . It says that on page 14,317 of one leading tax guide it clearly states that "a demand for under-paid tax must be abandoned by tax collectors in certain circumstances. Like if they fail 'to make proper and timely use of information supplied by a taxpayer about his or her own income, gains or personal circumstances'".

And "a tax demand will 'normally' be written off if the taxpayer 'could reasonably have believed that his or her tax affairs were in order'".

How to fight an under-payment demand

Help is at hand to stop the taxman clawing back what he calculates should have been paid all along from the Low Income Tax Reform Group. It has put together a step-by-step guide to challenging such a demand.

And the beauty of it is  that you don't have to be on a low income to follow the advice.

In a survey of 2,100 UK adults, HSBC found many taxpayers were failing to check their income tax deductions.

Its findings also show that 54% of us do not know our income tax code and 36% of us have never checked our P60.

David Wells, head of pensions, savings and investments at HSBC said it was important people knew their tax code and checked it with their P60 each tax year.

He says: "Whether you are in full or part time employment, there is always a chance you have been overpaying in which case you can reclaim the tax.

"There is equally the possibility that if you have been given the wrong tax code you could be underpaying and could be faced with a large tax bill at the end of the financial year.

"This research demonstrates the importance of being aware of all aspects of your finances and tax allowances; it is the obvious way to see if you can save money."

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