Insights

Unless it’s for holiday home taxes and #Instaincome

Tax can be tricky to understand and that’s why we try to make it as simple as possible. As a firm one of our values is to offer jargon free advice and when writing our blogs, the aim is to keep things simple and relevant. HMRC tries hard too. They recently revised a lot of the content on Gov.org to be clearer for non-native English speakers to understand.

Clearly not all accountants are succeeding. A recent survey by one of the Big 4 has shown that British people have rather a poor understanding of personal tax issues and they also lack a basic understanding of how the tax system works.

• Of the 2,000 people in the study, over half scored under 30% in a short test about everyday tax matters and the average result achieved was just 35%.
• Older taxpayers (55 +) were better informed, with an average score of 41%, contrasting with younger people aged between 18 and 24, who scored 23%.
• 80% of people did not know what the top rate of income tax (the additional rate) was – it is 45%.
• 46% did not realise that a ‘120L’ tax code meant having a personal allowance of £12,500 before being taxed.

Over 30% of people did not understand the Gift Aid tax rules whereby 25p for every £1 donated can be reclaimed by the charity. Of this number, 85% who were higher rate taxpayers and earning £50,000 knew about Gift Aid.

Demonstrating where many people’s interests lie – property and social media – there was a greater level of awareness about tax rules on second homes and income from brand endorsements. 80% realised that if they rented out a second home, the income would be taxable and 60% understood that if an Instagram influencer was paid for endorsing a brand, this income would be taxable too.

Are the current UK tax rates fair?

Interestingly, the more people in the study knew about tax rules, the fairer they thought the rules were and they were less inclined to want tax cuts. Livewire readers being so well informed must be in this more knowledgeable group!

When people think that a system is broadly fair, they are less likely to want to try and circumvent it. For the Treasury, ensuring people understand and buy into tax policy should mean fewer problems with tax evasion and more revenue, because people will be more accepting of their obligations. It could also reduce the numbers of HMRC enquiries.

If you need answers to any questions about tax rules and accounting, contact us at partners@rjp.co.uk. You can also visit Gov.org to find out more.