Taxpayers won’t notice two day tax freedom bonus
The majority of UK taxpayers won’t notice the fact that Tax Freedom Day, calculated each year by the Adam Smith Institute as the day UK taxpayers stop paying the government taxes and start earning money for themselves, is two days earlier than in 2013, says ACCA (the Association of Chartered Certified Accountants).
Tax Freedom Day falls on 28th May this year, two days earlier than last year. However, ACCA points out that the UK tax regime is burdensome and complex and as a result the two extra days is likely to go unnoticed in households across the country.
Chas Roy-Chowdhury, head of taxation at ACCA, said: “On paper, it is good news that taxpayers get back two days’ worth of tax compared to 2013. However, it’s almost irrelevant to households when tax freedom day falls. It is actually very difficult for taxpayers to notice whether they are paying more or less tax. There could be less tax coming out your monthly pay because of the increase in the personal allowance, but your total tax bill might be larger from indirect and other taxes. Will UK taxpayers notice the extra two days when they earn money for themselves rather than the Chancellor? I very much doubt it.
“However, it should be remembered that taxpayers do get something back from the taxes they pay. You can see where your taxes have gone the moment you walk out the door, from your bin collections to police on the streets. Even the pavements and roads are taxpayers’ return on investment. Often, the maze that is the UK tax regime clouds the benefits paying tax brings. Simplifying the system would certainly help taxpayers see where their taxes are going.”
ACCA says that although the Government introduced the Office of Tax Simplification, taxes in the UK are far from simplified. However, there are ways households can reduce their tax bills through various methods, such as Individual Savings Accounts (ISAs).
As well as ISAs, individuals and families can take other steps to reduce their tax bill:
Claiming all allowances and benefits: While some benefits have been cut, many people do not know they are entitled to certain benefits
Use Gift Aid: When making a charitable donation, make sure the Gift Aid box is selected so that the charity gets the full donation tax free. Higher rate taxpayers can claim the difference between the higher rate of tax at 40% or 45% and the basic rate of tax at 20% on the total value to the charity of your donation
Check tax codes: Not everyone checks they have the right tax code and so they could be paying too much tax - without knowing it. If a tax code is incorrect, the wrong amount of tax and deductions will be made. If you think there is a problem with your tax code, you’ll need to contact the tax office to get it changed - your payroll department may be the best place to start though if you only have one source of income
Consult a chartered certified accountant: Tax is confusing and changes regularly, so when it becomes too complex to deal with yourself, consult a qualified accountant. Anyone is allowed to call themselves an accountant, even if they aren’t qualified, so always check they are chartered certified accountants
Across the Atlantic
Compared to the USA, UK taxpayers pay for longer. In the US, the Tax Foundation has calculated that Tax Freedom Day across the Atlantic was on April 21st.
Chas Roy-Chowdhury said: “Of course, there are major differences between the UK and the US. The fact we pay for an NHS system is just one such difference and reason why the UK pays taxes for longer. However, in the US, people pay state as well as federal taxes.
“Nevertheless, while direct tax comparisons are difficult to analyse when it comes to the overall tax burden, what is clear is that tax remains a largely domestic issue, which means there are large disparities between countries. This makes it much harder to co-ordinate a global tax regime.”