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Wealth

Workers toast tax freedom day

LONDON (Reuters) - Taxpayers will spend 153 days working for the Chancellor this year -- making Monday “tax freedom day”.

Chancellor of the Exchequer Alistair Darling holds Gladstone's old Budget box for the cameras outside 11 Downing Street, before delivering his first Budget to the House of Commons March 12, 2008. REUTERS/Luke MacGregor

The day -- the theoretical point in the year when people stop working for the government and start working for themselves -- falls one day earlier than last year, according to the Adam Smith Institute.

But it is still seven days later than when the current Labour government came to power in 1997.

The individual taxpayer has borne the brunt of Labour’s tax policies, according to a report by accountancy firm BDO Stoy Hayward released to coincide with “tax freedom day”.

The key areas of taxation where the average worker is feeling the pinch include:

* Income tax and national insurance: the average taxpayer is now working for nearly 2-1/2 months to pay their share of these taxes alone -- 10 days longer than in 1997/98.

* Stamp duties: the number of days the average taxpayer works to meet these taxes has more than doubled to four since Labour came to power, due to rocketing house prices and a hike in the top rate from 1 percent in 1997 to 4 percent in 2000.

* Council tax: taxpayers are working 34 percent longer (one week in total) to pay their share than they were 10 years ago, due to the government more than doubling the tax take to 23.7 billion pounds to cover the increasing expectations and burden placed upon local government.

The root of the problem lies in the fact that salaries have risen by more than inflation, but personal tax allowances and tax bands have failed to keep up.

Stephen Herring, senior tax partner at BDO Stoy Hayward, said that meant “more people than ever before are sucked into the 40 percent top tax band”.

“This phenomenon is known as ‘fiscal drag’ and should rightly have a reputation as the most notorious stealth tax applied by all governments,” he added.

Unbiased.co.uk, a website that promotes independent financial advice, said people could bring their own personal “tax freedom day” forward by being more tax-efficient.

Undertaking inheritance tax planning, making full use of tax allowances and claiming tax credits can help to reduce the amount of tax paid.

People will pay an average of 183 pounds unnecessarily in tax this year -- up 14 percent on the year - according to Unbiased.

Chief executive David Elms said: “Tax freedom day is a key date in any UK taxpayer’s diary as it highlights just how much time we spend working for the taxman each year.

“By taking tax action now and ensuring that your finances are as tax-efficient as possible you can move your personal tax freedom day to earlier in the year and reduce your tax burden as well.”

Read Reuters consumer finance bloghere

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