Tax Freedom Day – calculated annually by the Adam Smith Institute as the day we stop paying the government taxes and start earning money for ourselves – falls today on 30 May, a day later than last year. ACCA (the Association of Chartered Certified Accountants) warns that people are working more and more for the tax man.
Tax Freedom Day has taken longer and longer to arrive in the last two years*, despite the rise in the personal allowance. ACCA says that indirect taxes has given the UK a ‘give and take’, complicated tax system which currently leaves households up and down the country with less money for themselves and more for the government.
Chas Roy-Chowdhury, ACCA's head of taxation, said: 'The public is picking up the tab for the government for longer and taking home less for themselves. The tax system is so muddled and multi-faceted that what appear to be helpful tax breaks, such as increases in the tax-free personal allowance, are in fact cancelled out by other taxes, including VAT, a wider-reaching 40 per cent income tax band which includes more people than before, and fuel costs. The outcome is that people have less income each year for themselves. At a time when the economy needs a kick-start and people need to spend more, they are being left with less to spend.
'The government is costing taxpayers more to run than it was last year and the year before that, despite cuts to public sector spending. This week, we heard that the Chancellor of the Exchequer has agreed spending plans with seven government departments. The British taxpayer hasn’t been consulted in this process, but they will be paying for it. Amidst the current debate about the rights and wrongs of tax planning, individuals are well within their rights to take advantage of various initiatives which can reduce the tax burden, such as Individual Savings Accounts (ISAs), to reduce the number of days they work for the tax authorities.'
ACCA says that as well as ISAs, individuals and families can take other steps to reduce their tax bill:
- Claiming all allowances and benefits: Taxpayers' money is ploughed into a wide variety of state benefits; while some benefits are being cut, make sure the state is giving you what you are owed.
- 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: Be tax aware and make sure your tax code is correct. Some people may 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, contact your local tax office or if you are Pay As You Earn (PAYE), liaise with your payroll department.
- Consult a chartered certified accountant: Tax is confusing, so when it becomes too complex to deal with yourself, always consult a qualified chartered certified accountant.
*Adam Smith Institute calculated that Tax Freedom Day was on May 29 2012 and May 28 2011.