This piece first appeared in Reader's Digest in May 2001
The text here may not be identical to the published text
At the end of May we will stop working for the Chancellor and start working for ourselves. Out of every £100 we earn as a nation, the Government takes £41.40. So for the first 41% of the year 151 days we work for Gordon Brown. Only after that do we keep the money we earn to spend ourselves. Thats the theory behind Tax Freedom Day, For the last three years it has been at the very end of May in 2000 the leap year brought it forward to 30th. This year is expected to be much the same it certainly will not be as late as June 15th, the longest time ever, reached in 1982. In the United States of America Tax Freedom Day comes earlier about 10th May but in the rest of the European Union it is later around June 14th.
Like all economic statistics, Tax Freedom Day has its critics. But unlike others measures this one is easy to grasp and fun! Basically it compares the total amount taken in tax with the total income of the country. All taxes are included direct taxes such as income tax and National Insurance, indirect taxes such as VAT, duties on petrol, alcohol and tobacco, as well as company taxes. If we exclude those though of course we all pay them in prices of goods we buy then the tax burden on us as individuals is less. For the average family, just over 29p in every pound earned disappears back to the Government in direct and indirect taxes.
And a lot of it is unnecessary. One estimate suggests that eight in ten UK adults - over 36 million people pay more tax than they have to and they lose nearly £5.8 billion a year. I think those estimates are almost certainly too high but I AM sure that many people do pay far more tax than they need to. And you do not need an accountant to find out how to pay less.
Up to a million families with children could claim the new Children's Tax Credit but have not yet done so. That is costing them at least £8 a week (I am writing this before the Budget where it is expected to be increased possibly to £520 a year). To qualify you need to have a child aged under 16 at the start of the tax year living with you there is only one credit regardless of how many children. If you or your partner has a high income more than about £33,000 the Credit will be reduced and if it is more than around £41,000 then you will not get the credit at all. It is the higher income that counts not the joint income so if you both earn around £32,000 each you will still get it in full.
If your income is low and you have one or more children under 19 living with you, then you may be able to claim another benefit - the Working Families Tax Credit. It boosts the income of lower-paid people though even those earning well over £20,000 may get it depending on their circumstances. More than a million people have claimed it but it is estimated that more than 250,000 could claim but have not done so.
The Inland Revenue admits there are hundreds of millions more pounds owed to millions of people who have money in a bank or building society. Interest earned on savings is automatically taxed at 20%. In other words, for every pound your money earns, the bank or building society deducts 20p without asking you and sends it to 11 Downing Street. But many people including children, students, non-working parents, people who are out of work, those on low incomes, and a lot of pensioners should not pay tax. Anyone under age 65 whose income is less than £4535 a year (£87 a week) should pay no tax. And people over 65 can have even more - £115 a week rising to £120 a week at 75. So if your income is less than these amounts, and you have money earning interest, make sure you do two things.
·Tell the bank or building society to stop deducting tax and pay your interest GROSS in future. To do that get form R85 from them or from the Inland Revenue.
·Make a claim from the Inland Revenue to recover the tax that has wrongly been taken in the past. Get form R40(SP)(M) from any Inland Revenue Enquiry Centre or Tax Office.
There is another group who should make a claim. They are people whose annual income is just above those levels, but is within about £1520 of them. Income at that level is taxed at 10 per cent, but the bank or building society will still deduct 20 per cent. You cannot stop them doing that, but the excess can be reclaimed. The Government estimates that around four million savers may be eligible for refunds worth around £300 million that is an average of £75 each! You can claim back tax you have overpaid for up to six years as far back as 1995/96.
If you were born before 6 April 1937 you will be allowed to have more income before you pay tax in 2001/02 up to £5990 before tax kicks in. If you work or have a company pension paid to you, it is worth checking that this higher amount was used when your tax was worked out in April. Look at tax code on your pay or pension slip if it ends in an L you are NOT getting the higher allowance it should end in a P (or a V if you are married). If you were born before 6 April 1927, check that the slightly higher over 75s personal allowance has been used your code should end in the letter Y or sometimes T. But if it is T get it checked anyway.
The married couple's allowance was abolished in April 2000 for most people. But if you were born before 6 April 1935 you are still eligible for it if you are married of course and it is worth about £400 a year slightly more if you are over 75, a bit less if you are under that age. Even if you are not married now but marry or remarry in the future, you can still get the married couple's allowance as long as you or your partner was born before 6 April 1935. Normally it is allowed to the husband, but it can be shared between both partners.
Tax Credits helpline 0845 609 5000 for tax credits
Taxback Helpline on 0845 077 6543 for claiming tax back
Tax freedom Day
Inland Revenue for leaflets and general information about income tax.