Charity begins on the payroll

Rick Marsland gives three examples of the various ways in which tax allowances can be used

Charity

Jean is a single check-out assistant at a supermarket earningpounds 9,800 a year. She has decided she would like to make regular donations to the RSPCA, and has found out that her employer operates a payroll giving scheme, commonly known as Give-As-You-Earn.

Jean settles on a monthly charitable donation of pounds 5 - well below the maximum eligible donation of pounds 900 a year. She registers her donation with her employer before the start of the tax year, and the donation is subtracted from her monthly pay packet before she receives it, reducing her tax bill in the process.

Tim Norkett, senior tax manager in the private clients department of the accountants Clark Whitehill, says charitable giving is always popular, and that GAYE is only one of the options on offer. Another course is to set up a deed of covenant, under which the giver makes donations net of basic rate tax, while the charity then claims that tax back from the Inland Revenue.

A further option is the Gift Aid scheme, which covers single cash gifts of at least pounds 250 each, and works in a similar way. In both these cases, if you are a higher-rate taxpayer you can reclaim the extra 15 per cent through your annual tax return.

q For further information, call the Charities Aid Foundation on 01732 520000.

Married couple

Peter and Angela, both in their early 30s, are getting married. The date they have set is 6 October 1996 - coincidentally halfway through the tax year. Peter earns about pounds 20,000 a year from his job in a building society, while Angela earns pounds 12,000 as a teacher of English as a foreign language, and has a child living with her from a previous marriage. Because of this, Angela is already claiming the additional personal allowance for single parents. For 1996-97 this allowance gives tax relief at a set rate of 15 per cent on pounds 1,790 - a total annual benefit of pounds 268.50.

From the date of the wedding, Peter can claim one-twelfth of the married couple's allowance for each month remaining in the tax year. This allowance is set at the same level as the additional personal allowance, so Peter will be eligible for half the annual benefit of pounds 268.50 - reducing his tax bill for 1996-97 by pounds 134.25.

Meanwhile, Angela can continue to claim the additional personal allowance for the rest of the year, but will no longer be eligible for it in 1997- 98.

Malcolm Bowen, a senior tax assistant at the accountants Kernon & Co, says: "Going back 10 years or so, there was a substantial tax benefit to being married. Its value has diminished steadily." The married couples' allowance was increased by pounds 70 to pounds 1,790 for 1996-97, meaning the effective tax benefit has risen by pounds 10.50.

Fellow accountant Tony Morris, a sole practitioner with offices in London and Bexley, welcomes that increase, but claims more action is needed if the long-term decline in the significance of the married couples' allowance is to be reversed. He says: "If the Government is true to its word that it wants to encourage the married family unit, then it should do it in as many ways as possible - including fiscal ways - rather than chipping away at the married couples' allowance as it has been doing."

Miras

Steve, in his late 20s, is living with his girlfriend in a house with a shared mortgage. However, he still has a second mortgage on his previous residence, a flat he has rented out to cover the mortgage payments. As the flat is no longer his primary residence he has been required by the Inland Revenue to give up Miras tax relief on that pounds 42,000 mortgage.

He was previously getting relief at 15 per cent on the interest of the first pounds 30,000 of the mortgage. Now, Steve will see his monthly mortgage payment rise by pounds 22.50. However, at the same time, the total interest payment now becomes allowable against the rental income from the property.

Buckinghamshire-based accountant Neil Priddy says: "A few years ago, when the relief was at the top marginal rate and a house might cost only pounds 30,000, it was really worth something. But nowadays, Miras is really neither here nor there."