When is your Tax Freedom Day?
While doing some research, I came across this concept that I thought was worth sharing.
Every year, the Adam Smith Institute calculates the number of days the ‘average’ person would have to work just to pay off their taxes in the UK.
Here are some key highlights from their 2020 report, while we await this year’s data calculations:
In 2020, we worked 150 days just to pay our tax bill. Putting it another way, for the calendar year of 2020, from May 30th onwards, we were working for ourselves.
Tax Freedom Day is now later than at any time since 1995 (as far as the best quality data goes back)
Everyone’s Tax Freedom Day is different and each of us can use allowances and reliefs to move that date.
In 2020, every penny the average person earned up until May 29th went straight to the taxman. From May 30th (Tax Freedom Day) onwards, the average person got to keep every penny they earnt.
Every individual will have a different Tax Freedom Day. In theory it will come later for high-earners and earlier for low-earners and the unemployed. In practice, this isn’t necessarily true because the HMRC does not simply tax income but also taxes consumption, investment and ‘sin’ activities at different rates. This includes indirect taxes (such as VAT, fuel duty, council tax) as well as direct taxes (Income Tax and National Insurance).
Interestingly, Tax Freedom Day has trended later each year since 1995, nearly creeping into June. What might 2021’s figures reveal?
There are a few things that everyone can do to move their Tax Freedom Day legitimately. Making sure your assets & liabilities are in the right:
Name (e.g. put it in your name, your partner’s, or both your names)
Ownership(check who is the person you want to benefit from this and nominate correctly)
Tax shelter (using allowances and reliefs to ensure you do not lose money unnecessarily to HMRC)
Legally and ethically, you can move that day, and if you need professional help with this, then please get in touch.
While Tax Freedom Day is not meant as anything other than an illustration and thought provoker – it does really bring home the reality of taxation and how you can help address it.
For more information, please get in touch!
Tax treatment varies according to individual circumstances and is subject to change.