Customers helped

Back to school – know your income tax (part 2)

Updated 23 November 2022

3min read

Nick Green
Financial Journalist

They should really offer classes in tax at school – after all, it affects everyone. But perhaps the government doesn’t mind if you accidentally pay more tax than you need to? You, on the other hand, definitely should mind – so Ajay Naik of Bankfield is back with another valuable lesson. (If you missed part one, it’s here).


The basic concept of UK income tax is simple enough. It’s in the execution that things can get tricky. This is especially the case if you don’t fit into one of the easier categories, or have less-than-simple tax affairs.

In our last class, I made the point that you need to be sure your tax code is right. You must check this code yourself (or have it checked on your behalf) if you want your tax to be calculated correctly – HMRC will accept no responsibility for errors in coding, and if things have been wrong for some time then this will make it all the more difficult to get them put right.

Whether low-income or high-income, you can save

If you are a basic rate taxpayer on PAYE, with little or no investment income, you can be reasonably confident that year on year you will be paying the right amount of tax. However, if you earn less than £10,600 in the 2015/16 tax year, or move into the higher rate or additional rate bands, you can be equally confident that you are paying the wrong amount of tax. This is because the system has its blind spots, which you need to address yourself.

For the lower paid (under £10,600 for 2015/16), you do not need to pay income tax on your savings. Unless you have previously advised your bank and building society, they will be paying your interest net and you will be overpaying tax. At this level of income you should also explore tax credits and see if you qualify, as these are consistently under-claimed.

For the higher paid (over £42,385 per year in 2015/16), you will need to claim the tax relief on pension contributions you have made, as these are not recovered automatically. As an example, of the last ten clients we took on who had not used a tax accountant or IFA in the past, how many do you think had recovered the overpaid tax on their pension contributions? That’s right, none of them. Not a single one. So we were able to save them a huge amount of money right away.

Keeping track of your tax

Everyone, whether low paid or highly paid, would be wise to do a quick tax calculation every year to ensure that they are not overpaying (or indeed underpaying) tax. If you have multiple incomes, such as from annuities or part-time jobs, or if your tax code is not allocated correctly, then there is considerable scope for errors. Use an online calculator such as this one to get an estimate of what you should be paying.

Remember to include all of your income sources, check your benefits in kind (company cars are one of the most notorious problems) and get your allowances right. If you still can’t make sense of it after all that, seek professional help. Paying more tax than you need to is just a gift to the tax man – and we’ve yet to meet anyone who got a thank-you card.

Ajay Naik (based on an original article by Jeremy Edwards).


About the author

Ajay Naik is an IFA and Financial Planning Director at Bankfield. Winner of Institute of Directors ‘Director of the Year Awards’ in 2014, Ajay has earned a reputation within the business and professional community as one of the most energetic and focused young entrepreneurs and business leaders in the East Midlands. He specialises in building and managing the wealth of business owners and has contributed to the success of many enterprises across the UK.

About the author
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.