Tax relief: Martin Lewis reveals how you can claim it
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Many people are caught up in the arrival of their payslip. Looking out for pay day each month can help people with spending or saving when the money hits the person’s account. But despite the anticipation building, large numbers of Britons are not taking the opportunity to understand what is in the document. Express.co.uk spoke exclusively to Rob Gardner, Director of Investment at St James’ Place Wealth Management, who provided insight into how individuals can understand their payslip. While there are no shortage of apps available to help Britons track their health, Mr Gardner has said many are not on track with looking at and monitoring their wealth in the same way. In fact, some 85 percent of adults do not understand the tax and pension contributions which are on their pay checks. The expert has described a payslip as a sort of ‘Financial Fitbit’, and urges Britons to take action.
Understanding a payslip, Mr Gardner explains, can help individuals to build a “financially resilient life”. This, though, requires certain moves to make with one’s money – earning it, keeping it and growing it.
When evaluating one’s finances, firstly, Mr Gardner stresses gaining an understanding of one’s “mental wealth”. This is because, he asserts, there is a direct link between mental health and personal finances, and when one is good, the other can benefit as well.
There are two key parts to good “mental wealth” with the expert breaking these down into financial resilience and financial wellbeing. The first is the ability to deal with setbacks, such as having emergency savings put aside. Whereas the latter involves making decisions and taking action to create wealth later over a longer time period.
For financial wellbeing, a simple awareness of one’s gross pay – the amount someone is paid before deductions – is key, and this should be checked every month via a payslip. For those who are unsure how to calculate their gross pay, assuming there are no extras, they can check their monthly payslip and then multiply the figure by 12 to check it matches their contracted annual salary.
Mostly, Mr Gardner stressed how an awareness of one’s finances can help them with big financial decisions such as getting out of debt, savings for emergencies and investing for one’s retirement. It can help both in the short-term and for longer-term life planning.
However, this isn’t the only consideration a person will need to take into account when it comes to their finances. Another important point is avoiding tax hikes, and this will be a key priority for a wide range of individuals.
Mr Gardner continued: “Money related worries can happen when one of life’s bumps in the road comes along, and surprises us. Suddenly, we have a bill to pay or an increase in our expenses which we haven’t accounted for, taking our financial plan off course – and this can happen if you’re not paying the right tax contributions.
“Just like you might count your daily steps to ensure you’re not under or over doing it, you’re also accountable for ensuring your tax code is correct. Your tax code is assigned by HMRC and is made up of letters and numbers reflecting how much tax-free pay you are allowed to earn in each year.”
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At present, Personal Allowance stands at £12,570 per year, under which a person will not to pay any tax. To calculate the amount of income someone earns before being taxed, all individuals will need to do is multiply the number in the tax code by 10.
Those who are overpaid tax, however, should expect a tax rebate to be issued automatically. But in instances where tax might have been overpaid, individuals willed to pay it back – usually via a tax bill.
However, what Mr Gardner stressed, is that if individuals are aware of their tax situation, if they see what they think is an error in their tax code, they can immediately alert HMRC to the issue and make sure it is rectified at the soonest possible availability.
When people look at their payslip, many end up feeling disheartened about salary “deductions” such as National Insurance, which the Government this week announced will rise by 1.25 percent from April next year. When items are removed from a person’s gross pay, it can feel like money is being taken away. However, Mr Gardner has reminded individuals this does not have to be the case.
National Insurance can be important as it goes towards the state pension and the NHS, however, it can also guarantee rights such as sick pay, as well as Jobseeker’s Allowance if it is needed, so it is worth making sure payments are correct.
To look at how these deductions could help later down the line, Mr Gardner encourages procuring a state pension forecast, which can show how much a person is set to get and when. He encourages individuals to view NI contributions as a payment to their “future selves”, as it can set people up for life, long after their payslip stops coming in.
However, relying upon the state pension alone is not likely to be a suitable endeavour, given the payment is increasingly becoming viewed as a safety net. As such, Mr Gardner’s final tip was to set personal goals for future financial gains, and this involves a lot of forward-thinking – namely towards retirement.
He continued: “Preparing for the worst-case scenario means not running out of money in retirement! Most people underestimate how long they will live by around 20 percent. That’s huge! If you live for another 30 years, that’s six years without any cash. In fact, the average man runs out of money 10 years before he dies, and woman 12.5 years. If you’re a couple, the chances of one of you living to 90 is about 50 percent, so if you’re still married when you retire there’s a high chance, you’ll need to plan for that.
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“So, along with your State Pension, it would be wise make a personal contribution of around 15 percent of your salary – which for some might mean topping up the amount your employer is already contributing – to your pension. 15 percent may sound like a lot, but a great place to start is by simply swapping what you’d spend on a cappuccino every morning which, if saved and invested correctly, could equate to almost £20,000 in just 10 years from!”
Mr Gardner encouraged individuals to reach out to their HR department to let them know about making pension contributions of £100 per month, which calculate at £68 per month when factoring in tax and National Insurance. This, he said, effectively amounts to £110 per month being paid into one’s pension. The swap, he highlights, could deliver a person a 60 percent return on their investment.
He concluded: “If you keep up this good habit for a year, that £110 equates to an annual personal pension contribution of £1,320 – or, £13,200 over a decade! Turning that £13,200 into £20,000 is achievable through investment, but you have to think in decades not days.
“So, if you’re retirement isn’t imminent you might choose to have your pension invested more in a more adventurous fund, investing in equities which is actually the best long-term approach to investing.”
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