Survey reveals widespread ignorance and apathy about income tax in the UK

News - Tax

Written by Ray Clancy

Wednesday, 08 September 2010 10:37

There is widespread ignorance and apathy about income tax in the UK with many failing to check their deductions and over half not knowing what their tax code is, research shows.

As letters to millions of taxpayers start to arrive today from the taxman telling them they have not paid enough tax, a report from bank HSBC shows the extent of lack of knowledge.

HMRC has admitted that over the last two years some 5.7 million people have paid too much or too little tax in the UK. Some 4.3 million are likely to get a rebate while 1.4 million face a bill for unpaid tax.

Now the HSBC survey reveals taxpayers are failing to check their income tax deductions. Despite around five million taxpayers receiving a repayment or a bill from HM Revenue & Customs because the incorrect amount of tax is collected through PAYE each year, more than half , 54%, of Britons do not know their income tax code and a third, 36%, have never checked their P60.

Personal income tax allowances and current thresholds for different tax bands are also a mystery for the majority of taxpayers. Eight in ten, 81%, did not know at what level of earning 40% tax applied, with more than half, 55%, believing they had to earn far more than the actual salary threshold. In addition, more than half, 53%, of UK adults did not know the current personal income tax-free allowance of £6,475.

Confusion is also rife when it comes to what income tax is paid on. More than half, 53%, did not know that income tax is payable on employee benefits and 30% did not know it is payable on pension income. In addition, one in five, 20%, did not know that income tax is payable on most savings while a further one in 10 incorrectly believed that income tax would be paid on cash ISAs.

It is those in full time employment who are least likely to check whether they are paying the correct amount of tax. Just half of those in full time employment know their income tax code. This falls to 43% of part time workers working between eight and 29 hours a week and just 39% of part time workers working less than eight hours a week.

However, while some may not be as aware of their tax code, part time workers working less than eight hours a week are most likely to check their P60, with two thirds, 66%, having checked these in the past. This compares to just 57% of those in full time employment. The fact that they are more likely to check their P60 may be the reason that this group are also more likely to have made a claim for a tax rebate, with 46% of part time workers under eight hours making a claim compared to just 39% of full time workers.

Men are slightly more likely than women to know their income tax code and also more likely to check their P60. Men are also more likely to know the correct personal income tax allowance and the correct threshold for 40% tax.

‘It is important that people know their tax code and check it with their P60 each tax year. Whether you are in full or part time employment, there is always a chance you have been overpaying in which case you can reclaim the tax. There is equally the possibility that if you have been given the wrong tax code you could be underpaying and could be faced with a large tax bill at the end of the financial year,’ said David Wells, head of pensions, savings and investments at HSBC.

‘This research demonstrates the importance of being aware of all aspects of your finances and tax allowances. It is the obvious way to see if you can save money,’ he added.