Income tax payments have to be paid and HMRC are really quite strict about the amount that each person has to pay. There are a few methods that some individuals can use to pay less income tax though and when used to the full advantage they can save you a few hundred pounds each year. Some of the methods do have restrictions and so they won’t apply to everyone unfortunately.

Use the personal allowance of a non-earner in a married couple
Any married couples that have one earner and one non-earner can use the personal allowance of the non-earner as a way of earning tax-free interest on savings. If the couple’s savings are registered in the name of the non-earner then they can earn the equivalent of the non-earner’s personal allowance – which for the year 2009-10 stands at £6475 – in tax free interest. The savings themselves aren’t liable for tax either.

Make use of the cash ISA allowance each year
By opening a mini cash ISA you can save a maximum of £3600 each year without having to pay income tax on it or the interest it accumulates. Everybody in the UK is allowed to open one mini ISA per year and so couples can make the most of the scheme and open one each – so allowing them to save a maximum of £7200 tax free each year. Do this for five years and you can have £36,000 safe from the tax man and for a basic rate tax payer this is a saving of £720 each year.

Check your tax code
It isn’t unusual for employees to have the wrong tax code and so every time they are paid and their income tax payment is taken by PAYE they end up paying to much. It is worth a phone call to your local tax office or the office that deals with your employers tax issues to check you have the correct tax code. If you don’t then you may be due for a rebate.

Start paying pension contributions
Basic rate tax payers do get income tax relief when making pension payments however the amount of relief is added directly to the pension contribution and so they don’t really get to feel the benefit. Higher rate tax payers do though because the value of the pension contribution plus the addition of the basic rate tax is added to their basic rate income tax band. This means that a bigger percentage of their earnings will class as basic rate and less will be subject to the higher rate tax payments. The tax saving is equivalent to 20% and so a pension contribution of £250 per month will save over £700 in tax each year.

Take a risk with a Venture Capital Trust (VCT)
Venture Capital Trust investments can be a dangerous game to play but they can also save big savers thousands of pounds in income tax payments every year. You can invest up to £200,000 each year in these investment schemes and the money you put in is subject to 30% tax relief. VCTs run for five years and so you can’t get your money back before this period ends, plus the money you invest is used to back small companies who run the very real risk of going bust. VCTs aren’t for the faint hearted but if you like the income tax relief that they offer then it’s worth checking the internet for more details.