Paying less tax 2006 - 2007 for dummies by tony levene

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Paying Less Tax
2006/2007
FOR

DUMmIES

‰

by Tony Levene

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Paying Less Tax 2006/2007 For Dummies®
Published by
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About the Author
Tony Levene is a member of The Guardian Jobs & Money
team, writing on issues including investment and consumer
rights as well as on taxation. He has been a financial journalist
for nearly thirty years after a brief foray into teaching French

to school children. Over his journalistic career, Tony has
worked for newspapers including The Sunday Times, Sunday
Express, The Sun, Daily Star, Sunday Mirror, and Daily Express.
He has written eight previous books on money matters including Investing For Dummies. Tony lives in London with his wife
Claudia, ‘virtually grown up’ children Zoe and Oliver, and cats
Plato, Pandora, and Pascal.

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Dedication
This book is dedicated to Claudia, who has shouldered many
of the household tasks I should have done during the writing
of this book – her unfailing good humour was 101 per cent
necessary; to Zoe for her invaluable help in suggesting ideas;
and to Oliver for making sure I kept to my deadlines. I’d also
like to thank my brother Stuart for keeping my computer
working and for letting me use the peace and quiet of his
home, where no one knew the phone number, for writing
some of the chapters.

Author’s Acknowledgements
I would like to thank everyone at Wiley for their help and
patience. In particular, Jason Dunne, who had the idea for this
book and faith in me to ask me to write it; to Alison Yates, who
guided me during the early stages; and to Daniel Mersey, my
main editor, who has unfailingly responded to my blacker

moments with light. And an especial thank you to Kathleen,
whose behind the scenes labouring turned my manuscript
from a book about taxation into Paying Less Tax For Dummies.
I would also like to thank my colleagues at The Guardian for
their patience and forebearance every time I mentioned ‘the
tax book’.
Most of all, however, I would like to thank all those who have
helped me over the years in understanding the complications
and convolutions of our tax system. They have to remain
anonymous but besides accountants, they also include those
in the Inland Revenue that I have encountered both as a journalist and as a tax-payer.

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Contents at a Glance
Introduction.......................................................1
Part I: Tax Basics...............................................7
Chapter 1: Understanding the Process and Your Role in It ..................9
Chapter 2: Looking at the Players and the Process .............................19
Chapter 3: Organising Your Records......................................................33

Part II: Tax, You, and Your Family.....................45
Chapter 4: Tying the Knot – Or Not........................................................47

Chapter 5: Taxing from the Cradle to College.......................................57
Chapter 6: Taxing Issues in Your Golden Years ....................................73
Chapter 7: Preparing for the Inevitable: Death and Taxes ..................81

Part III: You Work Therefore You’re Taxed ..........97
Chapter 8: Working for Someone Else ...................................................99
Chapter 9: Paying on the Perks ............................................................113
Chapter 10: Sharing in Your Firm’s Fortunes ......................................129
Chapter 11: Working for Yourself Can Be Less Taxing.......................141
Chapter 12: Considering Your Company’s Status...............................161

Part IV: Save on Your Savings
and Investments.............................................177
Chapter 13: Minimising Tax on Your Savings......................................179
Chapter 14: Taxing Investments ...........................................................195
Chapter 15: Saving Tax with Bricks and Mortar .................................211
Chapter 16: Understanding Life Insurance and Tax...........................227
Chapter 17: Depending on Pensions for Your Retirement ...............243

Part V: Self Assessment and Getting Help ........257
Chapter 18: Filling In and Filing Your Self Assessment Form............259
Chapter 19: Paying for Outside Help with Your Tax Affairs ..............275
Chapter 20: Dealing with an Investigation ..........................................285

Part VI: The Part of Tens.................................297
Chapter 21: Ten Top Tax-Saving Tips...................................................299
Chapter 22: Ten Top Tips for Dealing with the Tax Inspector ..........305

Appendix: HMRC Helplines .............................311
Index.............................................................315

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Table of Contents
Introduction .......................................................1
About This Book ........................................................................2
Conventions Used in This Book ...............................................3
Foolish Assumptions .................................................................3
How This Book Is Organised .....................................................4
Part I: Tax Basics ..............................................................4
Part II: Tax, You, and Your Family...................................4
Part III: You Work Therefore You’re Taxed ....................4
Part IV: Save on Your Savings and Investments ...........5
Part V: Self Assessment and Getting Help .....................5
Part VI: The Part of Tens .................................................5
Icons Used in This Book ............................................................6
Where to Go from Here .............................................................6

Part I: Tax Basics ...............................................7
Chapter 1: Understanding the Process
and Your Role in It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Filing Facts .................................................................................10
Distinguishing between avoidance and evasion.........11
Putting the brakes on avoidance schemes..................12
Moving to One-Stop Tax and Benefits Shopping...................12
Laying Out the Basics of the Tax System ...............................13
Considering Tax and Your Family ...........................................14

Looking at How You Pay...........................................................16
Saving Smartly ..........................................................................16
Investing for tax savings ...............................................17
Treating your home as your tax castle ........................17

Chapter 2: Looking at the Players and the Process . . . 19
Understanding the Inland Revenue’s Role.............................20
Administering and collecting .......................................20
Imposing penalties .........................................................21
Coping as a Ratepayer..............................................................23
Getting help from the Inland Revenue ........................23
Tracking down your tax inspector ..............................25


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Paying Less Tax 2006/2007 For Dummies
Playing Your Part .....................................................................26
Filing forms......................................................................27
Exercising your rights ....................................................28
Running through the Tax Year ................................................28

Chapter 3: Organising Your Records . . . . . . . . . . . . . . . . 33
Looking at How the System Works .........................................33
Keeping Good Personal Records ............................................34
Identifying who needs to keep records........................35
Sorting out what to keep ..............................................36
Deciding how long to keep tax records ......................38
Retaining Business Records ....................................................40
Asking for receipts..........................................................40

Keeping business records for a long, long time..........41
Ensuring a part-time business follows the rules ........42
Managing Your Record-Keeping ..............................................43

Part II: Tax, You, and Your Family .....................45
Chapter 4: Tying the Knot – Or Not . . . . . . . . . . . . . . . . . . 47
Getting Married .........................................................................47
Becoming engaged..........................................................48
Anticipating changes to your tax life ...........................48
Looking at what’s left of the married
couple’s allowance......................................................49
Maximising the Tax Benefits of Marriage...............................50
Sorting out your tax allowance ....................................52
Swapping your assets ....................................................52
Inheriting each other’s assets .......................................53
Taking a stake in a pension ...........................................53
Co-Habitating instead of Marrying..........................................53
Breaking Up ...............................................................................54
Sorting out the tax bill ...................................................55
Paying and receiving maintenance payments.............55

Chapter 5: Taxing from the Cradle to College . . . . . . . . 57
Becoming a Tax-Payer .............................................................57
Giving Money to Children ........................................................58
Giving money as a non-parent.......................................59
Taking advantage of the small amount exemption ....59
Saving Tax by Giving Wisely ...................................................61
Investing in single premium insurance bonds ............61
Setting up a trust ............................................................62

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xi

Getting Money for Children ....................................................65
Benefiting from child benefit.........................................65
Claiming child tax credit................................................66
Gaining a trust from the government...........................70
Receiving help with childcare costs.............................71

Chapter 6: Taxing Issues in Your Golden Years. . . . . . . 73
Retiring More or Less Completely ..........................................73
Realising when age does – and doesn’t – matter........74
Working on past retirement age....................................74
Paying Attention to Your Pension...........................................75
Claiming your tax-free lump sum .................................75
Buying an annuity to save tax .......................................76
Making Much of Age-Related Allowances ..............................77
Losing out due to the age-allowance trap ...................78
Escaping the tax trap .....................................................79

Chapter 7: Preparing for the Inevitable:
Death and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Passing On Inheritance Tax: Figuring the Final Take ...........82
What’s added in ..............................................................82
What doesn’t count ........................................................82
How the taxable total is figured....................................84
Spending Your Way Out of IHT ................................................85
Looking at life expectancy.............................................85

Making sure you have a home .....................................87
Giving Your Way Out of IHT .....................................................87
Avoiding dubious deals..................................................88
Reducing your estate as you grow older .....................89
Sharing with your spouse .............................................91
Giving money with potential ........................................92
Turning Capital into an Income ..............................................93
Drawing Up a Sensible Will ......................................................94
Setting up trusts..............................................................95
Making specific bequests ..............................................95
Rewriting a will................................................................96

Part III: You Work Therefore You’re Taxed...........97
Chapter 8: Working for Someone Else . . . . . . . . . . . . . . 99
Delving into the Mysteries of PAYE and its Codes ................99
Finding out what the numbers mean ........................100
Looking at the letters ...................................................101


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Paying Less Tax 2006/2007 For Dummies
Checking Your Deductions ....................................................102
Checking your pay packet ...........................................103
Meeting your national insurance obligations ...........104
Noticing when your employer gets it wrong .............106
Considering Special Jobs and Special Situations................107
PAYEing people in special jobs ...................................107
PAYEing when you’re on a contract
or a casual worker ....................................................108

Losing or Leaving Your Job ..................................................108
Making the most of the magic number ......................109
Heading off to temporary retirement.........................110
Welcoming a golden hello............................................111

Chapter 9: Paying on the Perks . . . . . . . . . . . . . . . . . . . 113
Taxing Those Little Extras .....................................................113
Travelling To and For Work ...................................................115
Counting the cost of a company car ..........................115
Driving a van can save tax ...........................................118
Cycling – two wheels are better..................................119
Getting to work the green way ....................................121
Getting Non-Transport Perks ................................................122
Housing: From the vicarage to the lighthouse..........122
Paying for childcare ....................................................122
Realising other tax-free perks ....................................123
Explaining Expenses: The Wholly, Exclusively,
and Necessarily Rule ..........................................................126
Examining expenses that qualify ................................126
Eyeing expenses you pay tax on.................................127
Special deals for special jobs .....................................127

Chapter 10: Sharing in Your Firm’s Fortunes . . . . . . . . 129
Offering Share Schemes – Who and How .............................129
Working out who offers what to whom......................130
Treasuring the tax savings ..........................................130
Listing the types of schemes.......................................131
Saving with a Save As You Earn Scheme..............................132
Looking at how SAYE accounts grow your money ...133
Feeling safe with SAYE..................................................134

Cashing in ......................................................................134
Leaving before your shares’ time ...............................135
Discussing Share Incentive Plans .........................................135
Getting something for nothing with free shares ......136
Going into partnership with your employer .............137
Matching shares with employer generosity ..............138
Divvying up the dividends...........................................138


Table of Contents

xiii

Going Beyond Approval ........................................................138
Getting a reward for enterprise .................................139
Picking out particular employees with a CSOP ........139

Chapter 11: Working for Yourself Can Be
Less Taxing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Defining the Terms .................................................................141
Meeting HMRC’s standards for self-employment .....142
Delving into the grey area: Sole trader
or simple seller?........................................................143
Testing your wings whilst staying employed ............144
Formalising Your Status .........................................................144
Registering your new business ...................................144
Choosing your tax year carefully................................145
Signing on for and paying VAT ....................................147
Keeping Accounts to Keep Everyone Happy ......................150
Filling out Schedule D can pay dividends .................150

Counting your credits ..................................................151
Accounting for big business items .............................152
Claiming extra help as you start up ...........................153
Accounting for loss making ........................................154
Scanning National Insurance ................................................155
Complicating the classes .............................................155
Putting a cap on national insurance...........................156
Hiring Helpers .........................................................................157
Employing your family .................................................157
Establishing a partnership with your partner ..........158
Paying employees .........................................................159
Giving Up Work .......................................................................159

Chapter 12: Considering Your Company’s Status . . . . 161
Informing Yourself about Incorporating .............................162
Looking at reasons to reject the company route......162
Taking advantage of company status ........................163
Setting Up a Limited Company..............................................164
Steering clear of the big tax clampdown ...................165
Making use of family to lessen the tax bite ...............166
Deciding How Best to Pay Yourself.......................................167
Paying yourself a salary out of the profits ................168
Taking dividends versus taking salary.......................169
How it all works ............................................................169
Setting Up Special Pension Plans .........................................172
Starting your very own company scheme ................173
Looking at limits on how much you can pay in ........173
Selling Up and Tax Rules ........................................................175

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Paying Less Tax 2006/2007 For Dummies

Part IV: Save on Your Savings
and Investments .............................................177
Chapter 13: Minimising Tax on Your Savings . . . . . . . 179
Taxing Interest.........................................................................180
Paying tax without effort (or intent) ..........................180
Shelling out at the special savings rate .....................181
Doing the sums yourself ..............................................181
Asking for a Tax Rebate..........................................................186
Checking your rebate qualifications ..........................187
Recovering money with form R85 ..............................188
Getting money back with R40 .....................................189
Getting money back up to five years later ...............190
Caring for Children’s Bank Accounts ...................................190
Considering the source................................................191
Noticing when R85 stops ............................................192
Opting for Tax-Free Savings ...................................................193
Considering tax-free savings plans.............................193
Betting on premium bonds..........................................194

Chapter 14: Taxing Investments . . . . . . . . . . . . . . . . . . . 195
Considering a Trio of Taxes ...................................................196
Doling out Stamp Duty .................................................196
Declaring your dividends ............................................197
Dealing with Capital Gains Tax .................................199
Looking at the Tax Implications of Investing ......................203
Saving hassle with unit and investment trusts .........203

Buying bonds ................................................................204
Examining the benefits of ISAs ...................................205
Rewarding risk takers...................................................206
Taking account of losses .............................................209

Chapter 15: Saving Tax with Bricks and Mortar . . . . . 211
Paying Stamp Duty and Council Taxes.................................212
Stamping on Stamp Duty ............................................212
Contributing Council Tax.............................................214
Buying to Let ..........................................................................214
Looking at the tax issues .............................................215
Claiming interest against your buy-to-let income ....216
Renting Rooms and Saving Tax .............................................218
Taking on holiday homes.............................................218
Moving into big-time property ownership ................220


Table of Contents

xv

Selling Up and Passing Along ................................................221
Telling the tax inspector about selling
your home..................................................................222
Avoiding Capital Gains Tax – usually .........................223
Being subject to Inheritance Tax ................................224

Chapter 16: Understanding Life
Insurance and Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
Looking at the Basics of Insurance.......................................228

Buying pure protection ................................................229
Writing policies in trust ...............................................230
Evaluating Endowments ........................................................231
Saving through an Insurance Policy .....................................232
Cutting Away the Complexity of Life Insurance
Taxation Rules ....................................................................232
Checking out whether policies qualify or not...........233
Jumping tax hurdles ....................................................234
Looking at Lump-Sum Insurance Bonds...............................235
Taking a regular income ..............................................236
Slicing from the top .....................................................238
Eyeing Guaranteed Bonds......................................................240
Going Offshore with Your Money..........................................240
Looking at the legalities ...............................................240
Weighing up costs versus savings ..............................241

Chapter 17: Depending on Pensions
for Your Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
Looking at Pension Particulars .............................................244
Saving for a Pension at Work .................................................246
Calculating how much you can pay in .......................246
Looking at topping up and matching payments .......247
Discovering the Benefits of a Stakeholder Plan ..................248
Buying a pension for your baby .................................249
Getting life cover...........................................................249
Building Up a Pension When You Work for Yourself ........250
Earning Less But Saving More ...............................................250
Deciding What Happens When You Retire ..........................251
Living it up with a tax-free lump sum.........................252
Paying in today, collecting tomorrow ........................254

What else can you do with your pension pot?..........254
Smaller funds – bigger cash sums ..............................255


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Paying Less Tax 2006/2007 For Dummies

Part V: Self Assessment and Getting Help.........257
Chapter 18: Filling In and Filing Your Self
Assessment Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259
Managing the Mechanics of the Form ..................................260
Getting the forms ..........................................................260
Discovering you don’t have to fill in a form ..............262
Keeping records ...........................................................263
Filling In the Return ...............................................................263
Avoiding the most common self
assessment errors ....................................................263
Listing income and credits .........................................264
Going into savings and investments ..........................265
Making friends with the blank page ...........................267
Seeing about supplementary pages ...........................267
Counting the Ways of Doing the Sums .................................270
Finding out that the early form-filler works less ......270
Using purpose-built software .....................................271
Filing Your Form ......................................................................271
Posting in your form.....................................................272
Submitting your form online .......................................272
Paying on Account ..................................................................273
Asking for a reduction in payments ...........................273

Adding up the potential penalties .............................274

Chapter 19: Paying for Outside Help with
Your Tax Affairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275
Surveying the Services...........................................................276
Deducting the cost of advice.......................................277
Assigning responsibility...............................................277
Trying a Tax Form Checker....................................................278
Affording the fees..........................................................278
Helping to recover overpaid taxes .............................279
Working Out the Value of Accountancy Services................279
Trying Out a Financial Adviser..............................................280
Taking Cover against HMRC Action .....................................281
Considering the costs .................................................281
Avoiding voiding your policy ......................................282
Saving Fees with HMRC’s Helplines......................................282
Getting practical advice ..............................................283
Keeping your expectations realistic...........................283


Table of Contents

xvii

Chapter 20: Dealing with an Investigation. . . . . . . . . . 285
Explaining the Basics of Investigations................................286
Misleading the taxman inadvertently .......................286
Rectifying your tax errors............................................287
Setting off warning bells .............................................287
Ringing alarm bells when you’re self-employed .......288

Placing time limits on the Inland Revenue ................289
Being the Subject of Investigation ........................................289
Getting a Dear Tax-payer letter...................................290
Exchanging information...............................................291
Ending the investigation .............................................292
Dealing with the Aftermath or Continuing the Process .....293
Putting your accountant on notice.............................294
Climbing the HMRC complaints ladder .....................294
Asking for compensation ............................................295

Part VI: The Part of Tens .................................297
Chapter 21: Ten Top Tax-Saving Tips. . . . . . . . . . . . . . . 299
Helping Your Favourite Charity.............................................299
Paying Attention to the End of Tax Year ..............................301
Making Gifts When You Can...................................................301
Using Capital Gains Tax Exemptions ....................................301
Checking Pension Possibilities..............................................302
Driving a Company Car ..........................................................302
Claiming Family Friendly Credits ..........................................302
Double-Checking Your National Insurance
Contributions.......................................................................303
Ensuring You’re Not Caught in the Age-Allowance
Trap ......................................................................................303
Claiming Tax Back on Savings ...............................................303

Chapter 22: Ten Top Tips for Dealing
with the Tax Inspector. . . . . . . . . . . . . . . . . . . . . . . . . 305
Getting Yourself Organised ....................................................305
Researching before Form-Filling ..........................................306
Remembering that Rules May Not Last Forever ................307

Taking All Taxes into Account ...............................................307
Ensuring You Keep to the Timetable ....................................308
Going Back to Previous Years ...............................................308
Steering Well Clear of Illegal Tax Dodges .............................308


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Paying Less Tax 2006/2007 For Dummies
Realising They’ve Heard It All Before ...................................309
Taking Professional Advice ...................................................309
Be Sure before Signing ...........................................................309

Appendix: HMRC Helplines..............................311
Index .............................................................315


Introduction

H

ow many times do you see the word tax in a day? Well,
I admit to not knowing how often it appears, but I’d bet
adding up all the mentions of this three-letter word in newspapers, on television, and on radio (and ignoring Internet hits),
must come to hundreds or more every day.
There’s another three-letter word ending in ‘x’ that’s also
widely used in the media. But whereas you can choose to
ignore sex, you have no option when it comes to tax. Paying
tax when it is due is compulsory. Failing to do so brings a
range of penalties from a simple fine to a long spell in prison.

Paying Less Tax For Dummies is the only book in the Dummies
series that focuses on a legal obligation. So it’s different.
There are no ifs or buts. Instead, there are plenty of must-dos.
It is very difficult to avoid dealing with the Inland Revenue.
When your grandparents or great-grandparents were young,
only a minority paid tax. Most people earned their weekly
cash wage packet and that was that.
Now practically no one escapes the tax inspector’s net. You
start paying income tax and national insurance at just over half
the national minimum wage when you work full-time. And if you
are lower paid, or out of work, many state benefits are now part
of the tax collector’s job as well. You can be a customer of the
tax system as an employee, employer, self-employed worker,
a student with outstanding student loans, a parent, a parent
wanting help with childcare, and as a consumer – because VAT
is now part of HMRC’s remit. About the only tax not included
is Council Tax. One way or another, around one-third of the
average pay packet ends up in taxation with the Chancellor of
the Exchequer and the Treasury.
I’ve been writing about the tax system and how it impacts on
everyone from the richest to the least well off for over 20
years. During that time, much has changed in the tax world.
One factor remains unaltered: We all need what the taxes pay
for such as hospitals, schools, roads, and the police. Yet, we


2

Paying Less Tax 2006/2007 For Dummies
would all rather have more money to spend on our families

and ourselves.
I hope reading this book helps you square this circle by using
the many legitimate ways available to reduce your tax bill
while paying what you owe on time.

About This Book
Paying Less Tax For Dummies is designed to help you pay the
right amount for your situation. It contains tax-saving tips and
then more tax-saving tips. These are the carrots.
But paying less tax is not just about considering ways to
reduce your tax bill. This book has two other strands to save
you money. In this book, I show you how the tax system
works. I tell you where you can find more information at no
cost. I give you hints and tips on how to deal with the Inland
Revenue. All this saves you hiring expensive professionals
who, in any case, take no responsibility for the tax form
you sign.
And Paying Less Tax For Dummies can help you avoid the
sticks – the penalties, fines, and interest payments that the
Inland Revenue uses to enforce the rules. So more carrots,
and, it is to be hoped, no sticks.
You can read this book in several ways. Obviously, one way is
to start at the front cover and end up with the index pages.
Reading it like a novel will give you a good idea of the wide
range of tax-saving possibilities. Or you can pick a topic that
interests you and go there straight away.
But my preferred way is to first read Part I on tax basics, and
then move on to the sections that interest you in your current
lifestyle. Perhaps, after Part I, you decide to move straight on
to Part IV because savings and investments are really important to you. Then in Part IV, you might want to skip Chapter 16

on life insurance as you’ve decided that, as a single person,
you have no dependants and so you don’t need any.
Irrespective of how you approach reading this book, note
that it is designed to dip in as a reference. So there will be


Introduction

3

some repetition. Doesn’t matter. Some things cannot be
repeated often enough. And as long as you end up paying less
tax, why worry?

Conventions Used in This Book
The taxation world revolves around jargon. Initials, numbers,
and combinations of initials and numbers are rife. I’ve tried to
avoid this as much as I can. But you can’t dodge tax language
completely, and it does no harm to learn a few of the most
common terms. Whenever I use tax-insider language, the first
mention in a chapter is italicised and I define the basics in an
easy to understand fashion.
Most people have heard of the Inland Revenue. However, the
Inland Revenue is now officially part of HM Revenue & Customs
(HMRC), so you’ll see the new name used in this book. But as
most people still refer to HMRC as the Inland Revenue, I sometimes use the old name, too (but they are the same).
You’ll notice text in grey boxes throughout the book. The
information in these sidebars is deemed interesting but not
essential. So, you can choose to read a sidebar if the topic
appeals to you, but if you skip it, you won’t miss out on anything you need to know.

Foolish Assumptions
While writing this book I made some assumptions about you:
ߜ You are not a tax professional. If you are, you have plenty
of manuals to choose from you, some taking up a full
bookshelf.
ߜ You don’t need hand-holding through every dot and
comma of the annual income tax return. I don’t go
through the self assessment form step-by-step. Instead I
offer tips you can put to use beforehand to make filling in
the form easier.
ߜ You don’t want tax to dominate your life. You want to
know just enough to make sure that you are paying the
right amount and claiming what is due to you.


4

Paying Less Tax 2006/2007 For Dummies
ߜ You want to know the disadvantages as well as the pluspoints where you have an option. This applies particularly to investment choices, and to lifestyle preferences
such as being married or not, or whether to give assets
away to your children and grandchildren.

How This Book Is Organised
This book has six major parts, or themes. Each part is
divided into chapters relating to the theme, and each chapter
is subdivided into individual sections relating to the chapter’s
topic. Additionally, to help you pinpoint a specific area of
interest, there’s a Table of Contents at the start of this book
and a detailed Index at the end.

Part I: Tax Basics
This part is essential for understanding the tax system in general. I take you through the Inland Revenue’s inner workings;
give you a general understanding of how taxes impact on your
life; scrutinise the process; and, most importantly for a subject
which relies on paperwork (and which can penalise you if you
don’t have it), show how to get organised and keep records.

Part II: Tax, You, and Your Family
In this part, I look at how tax affects each household. I start
with some problematic personal issues including marriage
and divorce. I then continue with how tax can work both for
the very young and for those old enough to have retired. And I
include what the tax inspector will do to what you leave to
your family and others after your death.

Part III: You Work Therefore
You’re Taxed
This part concentrates on work. It looks at what your boss
can legitimately deduct from your salary packet. And it tells
you how to check if the amount is correct.


Introduction

5

But it’s not all one way. There’s a variety of perks you can
have. This part will guide you through which are taxable and
which are tax-free. And this part will also tell you what happens to you tax-wise if you decide to become your own boss

either through self-employment or setting up your own limited company.

Part IV: Save on Your Savings
and Investments
In this part, I show you the wide variety of savings that can
be tax-free; and how to cut tax costs if you are prepared
to take risks, or prepared to take none. Then, I look at what
is probably your biggest investment – your home. And from
there, it’s a short step to the increasingly popular buy-to-let
market.
This part also tells you about the tax nightmare life insurance
can be; and how you can retire more profitably by using all
the tax help on pensions that the Inland Revenue offers.

Part V: Self Assessment
and Getting Help
If this book were a piece of music, this part would be the
crescendo. These chapters deal with the essentials of form
filling which everyone has to at least think about once a year
even if they don’t have to file a return. It also looks at whether
you should pay for additional help and what happens if you
are unlucky enough to have to undergo a tax investigation
into your affairs.

Part VI: The Part of Tens
This part is an essential ingredient in any For Dummies book.
Each of the two chapters contains ten succinct, must-know
points. The first is a vital résumé of tax savings including how
to help a good cause with tax relief on any charitable donation
you make; the second Part of Tens is a rapid revision course

on how to deal with the Inland Revenue.


6

Paying Less Tax 2006/2007 For Dummies

Icons Used in This Book
The little graphics in the margins point out bits of text to pay
special attention to for one reason or another.
This icon points out instances where I put names and
amounts to explanatory text. These examples can give you a
better understanding of how to put theory into practice, but if
you have a grasp of the topic, you don’t need to read them.
Keeping in mind the tips that this icon highlights can make
your tax life easier.
Tax ins-and-outs are highlighted with this icon. You can gain
from reading the information, but if you skip it, you won’t miss
out on anything crucial.
The advice marked by this bull’s eye is right on target for
every tax situation. If you read nothing but these tips, you’ll
be well on your way to paying less tax.
This icon marks things you absolutely shouldn’t do if you
want to stay on the good side of the Inland Revenue – or in a
good tax position generally.

Where to Go from Here
This book is set up so you read what concerns you in selfcontained sections. But of course, you can read in any way
you wish. It’s your call.
Wherever you go from here, whenever you find a piece of

advice or a warning that applies to you, copy it and then fix it
to the fridge with a magnet or pin it up on your notice board.
And as you read through this book, don’t forget to make
pencil notes on your tax form when necessary. Pencils sound
very low-tech. But you’d be surprised how often tax professionals really do use them. You can always rub your markings
out and start again before you present a definitive, signed
version!