Tax planning news
Tax rises force UK to work longer
2 June, 2006
On 3 June UK tax payers stop working for the government and start working for themselves and for this reason the day has been coined ‘Tax Freedom Day’.
This date is three days later than in 2005 and nine days later since the current government came to office in 1997, says accountancy firm BDO Stoy Hayward. In order to fund the Government’s net debt, which has increased by £110 billion since 1998, and public spending programme there have been significant tax and excise duty rises which have directly affected UK tax payers.
Three taxes have significantly increased their total collections over the past 12 months alone, according to analysis of HM Revenue and Customs (HMRC) receipts by BDO Stoy Hayward:
- petroleum revenue tax has risen by nearly 60 per cent
- capital gains tax has increased by 26 per cent
- corporation tax has increased by 25 per cent
Income tax (£130.8 billion), value added tax (VAT) (£72.9 billion), corporation tax (£41.9 billion) and stamp duty (£10.9 billion) collect a far greater sum of tax for the Chancellor and when combined, these taxes make up 82 per cent of the total sum collected.
Stephen Herring, Tax Partner at BDO Stoy Hayward, explains: "This day provides a real wake-up call for taxpayers to ensure that they are using all of the relevant tax allowances and breaks to make significant tax saving.
"Through investment in pensions and ISAs, inheritance tax planning and capital gains planning, the average UK taxpayer could save a significant amount of tax in most years. It is imperative for taxpayers to know their tax entitlements and to understand when and how they are taxed."
Through adjusting tax bands and personal allowances since 1997/98 at below the rate at which salaries and wages have risen, the amount of income tax collected has increased by 55 per cent and in the last year alone has risen by £7.9 billion. This is despite the Government’s pledge not to increase the higher or basic rates of income tax.
Through this ‘fiscal drag’, bands are only rising by retail price inflation, not by earnings and as such, the number of higher rate taxpayers has risen from 2 million to 3.3 million since 1997, according to the ONS.
VAT collections have risen steadily since 1997 but over the last two years have reached a plateau. Nevertheless, the sum of VAT collected has increased by over £20 billion since 1997/98.
Although stamp duty does not collect a proportionately large amount of tax for the Chancellor, the total collected has increased over the past nine years has risen by an incredible 135 per cent.
The raising of levels of stamp duty land tax from one per cent to four per cent has increased the sum collected, however it has been magnified by the country’s healthy residential and commercial property markets.
Top tax tips from BDO Stoy Hayward
1. Use up personal allowances
Every taxpayer in the UK has an annual personal allowance of £5,035. Herring states: “Often it can be worthwhile to transfer savings accounts and income investments into non-earning spouse’s names to utilize their personal allowance.”
2. Make use of tax-free savings
Up to £3,000 per year can be put in a cash individual savings account (ISA). Herring advises: “This is one of the most efficient ways of reducing tax on savings and should be used to its full advantage. Often it is simply inertia which prevents people from getting on to doing this, my advice is act now.”
3. Contributions to pensions
These save tax at an individual’s full marginal rate of taxation and since pensions ‘A Day’, the limits on contributions have been significantly relaxed.
4. Planning for inheritance tax
“Proper planning can often ensure that both a husband and wife’s full zero rate bands are utilised on their deaths,” advises Herring.
Bookmark with:
