London, United Kingdom (PRWEB) May 30, 2012
On 29 May UK residents can breathe a sigh of relief as we will have unofficially paid back the taxman for 2012.
The 29 May will mark ‘Tax Freedom Day’, a notional time in the year when UK taxpayers will, as a whole, have earned enough income to pay off their tax burden and start earning for their own benefit. Calculated annually by the Adam Smith Institute, it will take the average UK worker 149 days this year to pay off their debt to the state.
But Brits could reach their own Tax Freedom Day more quickly if they took action with their tax. The latest Tax Action report from unbiased.co.uk reveals that we are set to waste £12.6 billion2 in preventable tax payments this year. This translates into a whopping £4213 being wasted per individual taxpayer.
The research shows that, once again, the top area for tax inefficiency is tax credits, resulting in £7.26 billion being lost simply by people failing to claim their child tax credits, working tax credits and pension credits. Failure to make use of tax relief on pension contributions is the second biggest area of tax wastage (over £2.45 billion), followed by tax inefficient charitable donations (over £997 million).
Unbiased.co.uk’s data also shows that 85% of people state they have done nothing in the past 12 months to reduce the amount of tax they pay. But of those who have not taken any steps over the past 12 months to reduce their tax liability, half (50%) believe they are already being as tax efficient as possible.
Karen Barrett, Chief Executive of unbiased.co.uk comments: “As of next week we will be unofficially ‘tax free’. Although it’s nice to be able to think that you have stopped paying the taxman and started paying yourself, five months is still a significant amount of the year and our research reveals the top areas where we could be drastically reducing the amount we waste through unnecessary or unclaimed tax. Those looking to tackle their tax properly and ensure the right structures are set in place for their future should speak to an independent financial adviser who can offer guidance, advice and, more importantly, help you take action.
“An IFA will be able to review your current financial situation and work out exactly where you could improve your tax efficiency or where you could reclaim tax from the government. The grip on consumer spending is becoming even tighter and in the current tough economy it’s important that we help ourselves to be as efficient as we can with our finances. So take tax action now to move your personal Tax Action Day forward and reclaim and keep the money that is rightfully yours – to find an IFA near you who can help you manage your tax affairs visit http://www.unbiased.co.uk and simply enter your postcode.”
Tax Saving Tips from unbiased.co.uk’s IFAs:
1. Mel Kenny (Radcliffe and Newlands) – Don’t forget to claim your tax relief
“If you are a higher rate taxpayer, then you need to pro-actively contact your tax office to claim the additional 20% tax relief owed to you. Unfortunately few do this and are missing out on potentially hundreds of pounds. If you have been missing out on this relief for years, the good news is you can make a backdated claim. The same principle applies if you have been contributing to an employer’s group personal pension or simply a personal pension scheme out of your after-tax pay. Higher rate tax payers have to claim their extra relief - be careful, you might find you have additional taxes due too!”
2. Jason Witcombe (Evolve) – Make the most of tax breaks
“Take time to understand your tax position so as to make the most out of tax breaks on pensions and charitable donations. In the current tax year, for people under 65 your 20% income tax starts at £8,105; 40% tax starts at £42,475; there is an effective 60% tax rate for income between £100,000 and £116,210 and then 50% tax starts at £150,000. Furthermore, child benefit will start to be lost at £50,000. Planning around these thresholds can make your money work much harder for you.”
3. Dan Clayden (Clayden Associates) - Check if you’re holding your investments in the correct tax wrapper
“Making sure that you select the correct tax wrapper for your savings and investments is probably more crucial than ever. The current tax regime sees individuals liable to income tax at the ‘additional’ rate of 50% on income over £150,000, personal allowances reduced when income exceeds £100,000 and for higher rate tax payers, capital gains are now taxed at a rate of 28% – which now affects even more taxpayers since we’ve seen the basic rate tax band reduced in April. So if you don’t choose the most appropriate tax wrapper you’ll probably end up paying more tax than you need to ... and no-one likes doing that!”
4. Joss Harwood (Eldon Financial Planning) – Imagine that the tax year ends in the summer
“Imagine that the tax year ends in the summer, not next March and resolve to consider the tax efficiency of your affairs by the end of September. That gives plenty time to receive all the paperwork relating to the tax year just past, and clear up any queries. This also leaves you time to submit a self assessment return by the end of October if appropriate. You will also give yourself a longer period to make tax efficient regular contributions to pension arrangements and ISAs in the tax year and ultimately you can have a well-deserved moment of self satisfaction!”