Charity donations can add to tax bill

I am a lower-rate taxpayer and give to charities throughout the year using Gift Aid. Near the end of the tax year, I do not know if I have any allowance left.
PS

Sturminster Newton

Under Gift Aid, you must pay at least as much tax - on earnings, savings, investments or capital gains - as the charity will reclaim from the Inland Revenue. Whatever tax rate you pay, charities can reclaim the basic rate of tax. This is 22 per cent but is grossed up to 28 per cent because donations are treated as the amount after deducting tax. So the charities can claim an extra 28p in tax for every £1 you donate.

As you need to know before the year end how much tax you will be paying, you'll have to work it out for yourself. Bank and building society statements show the tax deducted from each interest payment you receive, as do dividend vouchers. If you assess your own tax on wages, you will have to calculate the figure as closely as you can.

Broadly, lower-rate taxpayers using all of the 10 per cent tax band will pay £196 income tax. Assuming they pay no other tax, the maximum they can Gift Aid to charity is £700 a year.

If you give more, the Revenue could ask you to make up the difference in extra tax. But you might be able to contact the charity in time to prevent the payment going through Gift Aid.

Studying your NI options


I've received a demand from the Inland Revenue to make up a shortfall in National Insurance contributions between 1997 and 2000 when I was a student and my only income was a grant. How can I be taxed when I had no earnings?
ST

St Andrews

This is not a demand for money but part of an Inland Revenue initiative to alert anyone who might be short of National Insurance contributions (NICs) for a full basic pension. Paying is voluntary. The student grant is not subject to NICs so you could be entitled to credits for that period. Call the telephone helpline shown on the letter. The Revenue staff can check your record and explain your options.

What's the best eight-year bet?


I pay £120 a month to a Norwich Union stakeholder pension and will retire after eight years at 60. A friend said it's not worth it but, with tax relief even at a basic rate, I think it still a good investment.

MW
Wells-next-the-Sea

Pension annuity payments are guaranteed for the rest of your life but you hand over all your capital - whereas income from other types of investment will fluctuate and your capital could fall but you do still have capital.

Basic-rate tax relief on £120 is £33.85 so £153.85 goes into your pension. Growth at 5 per cent would give you £17,200 after eight years. This might provide a 60-year-old man with an annuity income of £941 a year before tax.

More optimistically, if it grew at 7 per cent, you would have £18,600 which might provide £1,260 a year, paid out for at least five years but not increasing.

Putting £120 a month instead into a corporate bond Isa paying 5 per cent would give you £12,900, or £14,000 at 7 per cent, after eight years to do what you like with. You could put money into both pension and Isa.

Council charge fell into arrears


I missed a monthly payment of my council tax to the London borough of Hackney and received a summons to pay £555 - the remaining balance for the year plus a charge - which of course I do not have. I think this is unreasonable.
DL
London

Hackney is harsh on late payers in a bid to improve its previous terrible council tax collection rate. It insists it does not crack down after one late payment, provided the money arrives within the next two weeks, and the right to pay by instalments is lost only after three late payments.

You are paying £122 a month but Hackney says this should be £123.17. So your payments have been £1.17 a month short. If your statements show £122 is correct, point this out to the council because it has looked at your file again and insists the penalties still stand.

Make an appointment to talk to someone and, once you have checked the amount, set up a direct debit to avoid late payments again.

Standing order arriving late


We pay our council tax to the London borough of Waltham Forest by direct debit on the 25th of the month. At first there was no problem but then we received final demands. We assumed it was a mistake. Now the council has fined us £72.50.
KO'B
London

The council says you pay by standing order rather than direct debit and the money does not arrive by the due date of the 1st of the month. You should ask your bank how many working days to allow as this appears to be the problem. As you have now paid up to date, Waltham Forest confirms that the threat of bailiffs has been withdrawn.

· Email Margaret Dibben at money.writes@observer.co.uk or write to Margaret Dibben, Money Writes, The Observer, 3-7 Herbal Hill, London EC1R 5EJ and include a telephone number. Do not enclose SAEs or original documents.Letters are selected for publication and we cannot give personal replies. The newspaper accepts no legal responsibility for advice