Around £9.3 billion is wasted each year in unnecessary tax, costing each of us an average of £183, new figures reveal.
Analysis of Inland Revenue and other official data – by research firm RAKM – shows that the amount we pay in unnecessary tax has risen by 14% from last year, with 82% of people admitting they have done nothing to reduce their tax payments.
According to the Adam Smith Institute (ASI), 2 June is Tax Freedom Day – the day we stop working for the government and start working for ourselves. This means that every penny earned in the first 155 days of the year is taken by the taxman to support government spending. This includes income tax and national insurance, as well as VAT, fuel duties and alcohol tax.
The ASI claims that if public spending had only grown in line with inflation since 1997, then income tax, corporation tax, capital gains tax and inheritance tax could have been abolished by now, leaving the taxpayer £200 billion better off.
In 1963, 24 April marked the first day in the year when the average person had earned enough to pay their taxes.
David Elms, chief executive of unbiased.co.uk, which commissioned the RAKM research, says that there are a number of measures people can take to reduce their tax burden, some of which can be taken today and others which may require the help of an independent financial adviser.
He adds: "Tax Freedom Day is a key date in any UK taxpayer's diary as it highlights just how much time we spend working for the taxman each year. By taking tax action now and ensuring that your finances are as tax efficient as possible you can move your personal tax freedom day to earlier in the year and reduce your tax burden as well."
Three ways to reduce your tax burden from home:
1. Using your ISA allowance is one of the simplest ways to reduce your tax burden. Everyone over the age of 18 has an annual allowance of £7,200 this tax year (2008/09) of which £3,600 can be deposited in a cash ISA.
An ISA should be the first home for your savings, but if you have used your allowance you could also consider a tax-efficient savings account from a Friendly Society or National Savings & Investments.
2. If you are eligible to claim tax credits then don’t put off doing so. Elms estimates around £3.7 billion of cash is up for grabs from Revenue and Customs and the Department of Work and Pensions in the form of pension credits, child tax credits and working family tax credits. You can find out if you're eligible by contacting HMRC on 0845 300 3900. Details are available online at taxcredits.direct.gov.uk.
3. Finally, Elms says as much as £474 million goes begging each year, £330 million through non-taxpayers failing to claim tax back on banks and building society savings accounts. A further £144 million is wasted by taxpayers not transferring savings accounts to non-taxpaying spouses, so that the tax liability on the savings is lower.
For more ways to reduce your tax burden read our guide to getting your own back on the taxman.