By Claire West
Following the news that over a million taxpayers were overcharged last year by HM Revenue and Customs, which collected £238m too much tax, HSBC research reveals widespread ignorance and apathy about income tax among UK taxpayers.
Let’s talk about tax
The survey of 2,100 UK adults 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, the research reveals that more than half (54%) of Britons do not know their income tax code and more worrying 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%) adults 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 (£6,475).
Confusion is also rife when it comes to what income tax is paid on. More than half (53%) of adults 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 1 in 10 incorrectly believed that income tax would be paid on cash ISAs.
Full-time employees in the dark
Surprisingly, 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 8-29 hours a week and just 39% of part-time workers working less than 8 hours a week.
However, while some may not be as aware of their tax code, part time workers working less than 8 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 8 hours making a claim compared to just 39% of full-time workers.
Gender tax divide
Men (51%) are slightly more likely than women (43%) to know their income tax code and also more likely to check their P60 (63% vs. 51%). Men are also more likely than the fairer sex to know the correct personal income tax allowance (51% vs. 44%) and the correct threshold for 40% tax (23% vs., 15%).
David Wells, Head of Pensions, Savings and Investments at HSBC comments:
“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.
“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.”