Turn the tables on the taxman

Tax Planning: Why hand more than your share of a hard-earned wage to Mr Clarke? Take a little time and you could collect a cheque from the Exchequer

We often hear about politicians wasting taxpayers' money - but what about the millions of taxpayers who are wasting their own? Are you one of them? The answer is probably "yes" - since the latest figures compiled by Ifap, the organisation that puts people in touch with independent financial advisers, show that three out of four adults are paying more than they should. That adds up to pounds 5.5bn a year - or pounds 158 a head.

There are two main reasons for this massive overpayment - failing to make full use of tax allowances, and failing to manage our savings in the most tax-efficient manner.

Look first at your tax allowances. Yes, the tax form looks complicated, and yes, it might need a couple of hours with a calculator or a computer and a simple spreadsheet. But just think of the satisfaction at getting the better of the taxman - to say nothing of the money you might save.

Here are a couple of simple scenarios that might help to cut your tax bill.

Imagine a married couple where one partner works and the other does not - and has no other individual income. Do you have any investments? If so, in whose name? If they are held by the non-working partner - which usually means the wife - the income would be offset against her previously unused personal allowance.

In addition to the personal allowance, there is also an additional married couple's allowance of pounds 1,720. Unless you tell the Inland Revenue otherwise, this will automatically go to the husband. It's often seen as a last throwback to the dark ages - as recently as the 1970s - when the taxman would not answer letters from married women on the grounds that their tax affairs were a matter for their husbands.

But if you are a family where the wife pays tax at a higher marginal rate than the husband, the couple could cut their collective tax bill by switching the allowance to the wife.

There are many more ways in which a little time and effort can cut your tax bill - time and effort which is essential, rather than optional, under the latest arrangements for self-assessment of tax.

There are three things to remember about this new regime: make sure you keep accurate and detailed records, post the paperwork and payments on time (or you will face penalty payments of pounds 100 or more), and if in doubt, consult an accountant now, before it is too late.

Now to the savings and investment side of your affairs. It is 10 years since - as his television commercials remind us - then Chancellor Nigel Lawson introduced personal equity plans, or PEPs.

Although most of the plans advertised in these pages are "wrappers" for holdings in unit trusts, PEPs were originally intended to enable individuals to hold share stakes with growth and income tax free. And yet thousands of shareholders still hold their shares directly, rather than through a PEP - handing over an extra pounds 300m a year to the Inland Revenue along the way.

Take just one example. In July 1989, about a million people became shareholders for the first time when Abbey National converted to a bank and floated on the stock exchange. At the start of trading, 1,000 shares were worth pounds 1,300; this week they are worth about pounds 7,700 - and, of course, dividends paid out over the period have totalled a further pounds 994.

A number of brokers, such as Kleinwort Benson, think that Abbey's strong performance of recent years might be slowing and advise clients to sell now and take their profits.

If you follow that advice, will you benefit from Chancellor Lawson's tax-break - or hand over part of your windfall to his successor, Kenneth Clarke?