Five ways to avoid overpaying your tax

Many of us end up paying too much tax or national insurance. Patrick Collinson outlines the main pitfalls
Young woman on an Apple iPad
Claim what you can, but remember, HMRC will only accept what is reasonable. Photograph: Alex Segre/Alamy

Don't overpay national insurance

You should stop paying national insurance when you reach state retirement age – 65 for a man and 60 or upwards for a woman, depending on her birthdate (and rising to 65 in 2018). Lots of people who work part-time after their state pension age, either for an employer or self-employed, wrongly pay NI. You can apply to HMRC for an age exception certificate if you continue working so that you don't pay NI contributions, and can claim back previous overpayments.

If you're below pension age, you may still be overpaying NI. "If you have two or more jobs, or mix a full or part-time job with some freelance work, you could be in the area of overpaying NI," says John Whiting, director of the Chartered Institute of Taxation. For example, you may have overpaid if you had more than one job and your combined earnings were more than £844 a week in the 2010-11 tax year. Find out how to reclaim at

Get your tax code right

Some people have overpaid thousands of pounds in tax through having the wrong tax code. It's that figure on your payslip, usually three digits followed by an L, such as '725L', and it tells your employer how much to deduct from your pay packet. A 747L code means you can earn £7,475 a year tax-free. Your tax code is adjusted (downwards) for any untaxed benefits you receive from your employer, such as private health insurance. Incorrect codes – there are thought to be millions – often result when people move jobs and incorrect data is passed on.

To check you're on the right tax code, try consumer champion Martin Lewis's code checker . You can claim back up to six years' overpaid tax, although this will drop to four years very soon.

Older people should check they are receiving their higher personal allowance. The allowance rises from £7,475 to £9,940 at age 65 and £10,090 at age 75. But HMRC starts clawing back the additional allowance once your earnings exceed £24,000. It is reduced by £1 for every £2 you have over the £24,000 limit, so if, for example, you're 66 and have income of £24,500 – £500 over the limit – your age-related personal allowance is reduced by £250 to £9,690.

Claim the cost of your iPad

There are lots of things you can claim as a business expense, but HMRC will only accept what's reasonable – just because you do some freelance work from home one or two days a week, but work on an employed basis elsewhere, you can't run the entire cost of your home phone, broadband and computer purchases against your tax bill. But you can claim some.

The key, says Whiting, is "reasonable apportionment". He says HMRC objects to the phone line rental being claimed against tax when the phone is principally used for private purposes. Don't even try to claim clothes against tax, unless you have to buy specialist protective clothing for your line of business. Whiting points to the case of a female barrister who tried to claim her court attire, but was refused; HMRC takes the view that you use most clothing for warmth and decency, not for business purposes.

Use your partner

Spouses and civil partners can legally maximise the benefit of each other's personal allowance and tax band. This only works if one is paying higher rate tax (40%) and the other is on the lower rate (20%) or not earning.

Savings and investments can be transferred between couples to ensure tax is paid by the partner with the lowest tax rate. If you own a buy-to-let or holiday home, the income from letting can be paid to the partner on the lowest tax rate, potentially saving thousands of pounds. Whiting recommends that owners of buy-to-lets think of all the expenses they can claim, such as the cost of visiting and checking up on the property.

Make the most of Isas and pensions

Put any spare money into a cash Isa. This year's allowance is £5,340 a head, rising to £10,680 for shares-based Isas. A couple who each take out an Isa every year can in five years avoid tax on more than £50,000.

If you or your partner is a non-taxpayer (for example, a student) you can use form R85, available in bank branches, to ensure that interest on savings is paid gross, rather than basic-rate tax being deducted at source. You can also obtain tax relief of up to 50% on contributions into a pension.

This article was amended on 13 January 2012. The original said that women's retirement age was now rising to 65 in 2015. That has been corrected to 2018.