3 New Year’s Tax Resolutions You Should Make

by in January 5th, 2011

Tax Tip

Have you made any New Year’s Resolutions?

According to a 2008 survey in the Daily Telegraph, forty per cent of Brits planned to make New Year’s Resolutions in 2009. And, amongst these, six out of ten people intended making a resolution relating to their finances.

So, with the New Year upon us, here are three simple tax resolutions that you can make for 2011.

1. Claim your business mileage

Many employees do not realise that they can claim tax expenses for mileage that they incur for work using their own private vehicle (car, motorbike, cycle). As long as the journey is for business purposes – for example delivering products to customers – you may be able to claim an allowance to cover these costs.

The amount of tax refund that you can claim depends on what vehicle you use. HM Revenue and Customs publish a list of set ‘mileage rates’ for the different modes of transport – cars, vans, motorcycles and bicycles. You can claim the number of miles you have travelled on ‘work journeys’ multiplied by the set mileage rate for the vehicle that you used.

You claim the difference between HMRC’s set ‘mileage rate’ and the expenses rate your company actually pays you. Bear in mind that if your employer already pays you expenses which are above the fixed HMRC rate, any excess is taxable as income.

Tax Returns for £99

2. Open an ISA

If you are a taxpayer, you will generally pay income tax on all the interest you receive from your savings accounts. So, if you do not manage your savings in a tax efficient manner, you can end up paying more tax then you need to.

The simplest way to avoid paying more tax than you have to is to open an Individual Savings Account (ISA). ISAs allow you to save a certain amount of money each year tax-free (£5,100 in tax year 2010/11 rising to £5,340 in tax year 2011/12). And, any interest that you receive on these savings is free of both income tax and Capital Gains Tax.

3. Make a will

Making a will not only ensures that your assets are passed to your chosen beneficiaries but it can also help you avoid significant taxes.

You can leave up to £325,000 tax-free to anyone in your will, not just your spouse or civil partner (tax year 2010-2011). Inheritance Tax is then payable at 40 per cent on any amount you leave above this.

Using a will can also allow you to leave part of your estate to a registered UK charity. Any money or assets you leave to a registered charity are exempt from Inheritance Tax.