Tax relief: are you claiming everything you can?(Image: Pascal Broze - ONOKY)

At a time when wage freezes, public spending cuts and inflation are putting huge pressure on our already tight purse strings, it's essential we make every penny count.

Yet, as a nation, we are still handing over huge amounts in tax - often unnecessarily so.

Research shows that Brits are set to give a massive £13.5 billion to the taxman this year. The Tax Action Report from highlights how much tax people could have avoided paying through better financial planning.

Small businesses are also feeling the effects of the economic climate and continue to struggle to find financial support - a problem that's only likely to worsen over the past 18 months.

Below are a number of aspects both small businesses and individuals should be considering when it comes to tax.

Are you paying the right amount of tax?

Individuals (including business owners):

For many people pension contributions can be a good source of tax relief as, in general, for every £80 that you pay into a personal pension the government increases that by £20 so that your pension actually increases by £100.

Tax Credits
Many more people can claim tax credits than you would think - there is a great online tool available from HMRC that anyone can complete and it will tell you if you are entitled to tax credits, which ones you could claim and, if so how much they would be worth. To access the tool, visit:

Individual Savings Accounts (ISAs)
Each year taxpayers are allocated an individual limit that they can invest in an ISA which allows you to receive interest on the amount invested and not be taxed. The overall combined ISA allowance is £10,680 for the 2011/12 tax year of which the maximum £5,340 can be invested in a cash ISA, leaving another £5,340 to be invested in a stocks and shares ISA if desired.

Charitable donations
For anyone that makes donations to charities, selecting the Gift Aid option means that the charity can claim gift aid on your donation and the government will again increase your donation of £80 to £100. This may not be a tax relief for you as an individual but it does boost the value of your giving, and can make a massive difference to the charity you are supporting.

Mileage allowance payments
The amount of tax free mileage allowance payments - given to people who use their own vehicles for work - was increased in the Budget earlier this year to 45p per mile for the first 10,000 business miles and then 25p for each mile thereafter. The important thing to note about these allowances is that, if your employer does not pay this, then you can make a claim each year to HM Revenue & Customs for the tax relief on the amount not paid.

Tax credits: don't miss out on your entitlement

Small businesses:

'Hidden' Capital Allowances

Many business owners that trade from owned business premises may be missing out on tax relief available. In some cases this can help result in a tax refund and help to reduce the future tax liabilities of the business.

Why is this? Most (if not all) business premises are purchased and bought into the business accounts for the full amount paid, but for some buildings included within the total cost paid are items of plant and equipment which, if treated separately, attract capital allowances whereas the value of the building itself will not.

Don't worry if you have already bought a building as this exercise can be carried out at a later date, as long as your accounting information is complete.

Examples of some of the businesses that should look at this are caravan parks, hotels and restaurants, nursing homes and office blocks.

Research and Development Tax Credits
Understanding terms and definitions when tax planning could be critical to your business and Research & Development is one of these to be watchful of.

If you are developing products and processes they may be eligible for significant payments of cash through the Research & Development (R&D) Tax Credit regime. The definition of R&D is much wider than most people think and that is why opportunities to claim are often missed by business owners.

Most businesses do not claim this valuable relief because the words 'Research and Development' are synonymous with laboratories, novel and innovative concepts. This is most certainly not the case and can lead to missed opportunities.

A company must show an "advance in technology" to qualify, but this could be simply reducing cost, weight or size... it does not mean you have to be making ground-breaking changes.

Examples of some of the businesses sectors that should look at this are IT, telecommunications, recycling, health and media.

Pension Fund Planning
Many small business owners often feel like they'd be better off putting the money they set aside for their pension back into their business. But if you could use this pension to purchase your own business premises would that change your mind?

Well the good news is that you can. And the even better news is that once the property has been purchased your business can then get tax relief on the rent payments that it makes back to your own pension fund.

This is not only a useful tax incentive but it is also a really handy resource for many small businesses who are struggling with lending issues. It also means you can protect your pension fund which should form a key part of your personal financial planning.

Benefit to both individuals and businesses:

Childcare vouchers
For any employee that has to pay childcare costs it is worth speaking to your employer to ask if they would be interested in paying it on your behalf, in return for the same amount being deducted from your salary.

At first sight this may not seem to be of any benefit to anyone but actually it could make a big difference to both you and your employer for the following reasons:

  • The employer saves Employers NIC on that portion of your salary.
  • The employee does not suffer PAYE (income tax) & NIC on that element of their salary.
  • This means that the employer reduces their wage costs and the employee is better off, as they have saved the PAYE & NIC deductions on the childcare element.

Life insurance
A new type of policy, referred to as a Relevant Life Policy, has been introduced over recent months. It allows an employer to pay the life insurance on behalf of the directors and any key employees of the business and for the company to obtain tax relief on the payments made.

This works in much the same way as childcare vouchers above, as the employee would have to reduce their salary by the amount of life insurance being paid. However, the employee would then no longer need to make those payments out of their already-taxed income.

Alan Woods is director of business growth at accountants Woods Squared

Related links
Tax credits: don't miss out on your entitlement
MSN Money's tax centre
Are you paying the right amount of tax?
Find an independent financial adviser