It will probably come as no surprise to contractor accountants to learn that many people in the UK are confused by our taxation system.
According to recent research from HSBC, 53% of adults do not know that their personal tax allowance is £6,475 and 81% do not know at what income level the higher tax rates kick in. Annual earnings between £37,401 and £150,000 are currently taxed at a rate of 40% and any earnings above £150,000 are taxed at 50%. Additionally, 54% have no idea what their income tax code is and more than a third of taxpayers never check their end of tax year P60 form.
Employees are just as confused as to what they actually pay income tax on. Over 50% did not realise that employee benefits are taxable and slightly under a third did not know that income from pensions was classed as taxable income. We fare little better when it comes to understanding income tax on our savings. 20% of adults didn’t know that the majority of savings were taxed and an additional 10% thought that cash ISAs, which are tax-free, did get taxed.
The results of the bank’s research were highlighted in the BBC Panorama programme on Monday, 11th October. Christine Foyster, HSBC’s senior manager of investments and savings told viewers that it was important for the British workforce to realise how much tax they should currently pay and the amount they have paid in previous years.
Taxpayers and limited company contractors in the UK should make sure they understand all aspects of the finances, including their tax allowances, if they want to make the most of their money, she added.
HMRC has admitted that more than a million taxpayers were charged too much tax last year, but if we do not understand the tax system, how many cases could have slipped through the net?
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