Tax Freedom Day
Tax Freedom Day falls on 30 May this year, but with full details of the new Government’s tax policies still to be worked out between the Conservatives and Liberal Democrats, and with an emergency budget still to come, the total UK tax bill is still up in the air, says ACCA (the Association of Chartered Certified Accountants).
“Tax Freedom Day has crept forward again this year, mostly on the back of the VAT rise in January. Normally, taxpayers can reduce their tax bill by taking advantage of all the tax breaks and benefits that the state offers,”
said ACCA’s head of tax, Chas Roy-Chowdhury.
“However, the new coalition has promised big tax changes in the months ahead, the details of which are still unclear. The detailed coalition document hasn’t significantly developed what was outlined in the initial agreement either. The formation of a coalition government has unavoidably muddied the waters on tax, which could force people to delay planning their tax matters this year.”
Tax gets a section to itself in the coalition agreement between the Liberal Democrats and Conservatives, but it’s a section light on detail:
- A “substantial” rise in the personal allowance is promised for the emergency budget (to be introduced in April 2011), but there is no detail on what a “substantial” rise is, nor exactly who will benefit
- The parties have agreed to “seek a detailed agreement” on non-business capital gains rates, but there is no guarantee that the parties will be able to reach an agreement. The coalition deal says that capital gains rates will be “similar or close to those applied to income” but there is no precise figure or timetable given
- Tax allowances for married couples, a key tax pledge of the Conservatives, are briefly mentioned but there is no detail on when they might be introduced
- While both parties are agreed that cuts will be made to Child Tax Credits for the wealthiest, there is no detail on exactly who will lose out
Mr Roy-Chowdhury adds:
“As well as uncertainty over the changes mentioned in the coalition document, there is also uncertainty over what isn’t mentioned once: VAT. After income tax and national insurance contributions, VAT is the 3rd biggest tax burden on UK citizens and there has been plenty of speculation that it could go up to 20% at this budget. If this happens, we may just be celebrating Tax Freedom Day a bit too soon.
“It’s not only VAT that could go up. Add in the 50% income tax rate, possible big capital gains rates rises, and restrictions on pensions relief, and we could see Tax Freedom Day move up to two weeks into June next year”.
Despite the uncertainty around some tax issues, there are still steps taxpayers can take to legitimately lighten their tax burden:
- Use Individual Savings Account (ISA): Taxpayers can place £10,200 a year in these tax-privileged investments. That’s £20,400 for a couple, which is free from capital gains tax or income tax
- 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% 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 chartered accountant.