Tax Freedom Day in 2016
Today, 3 June 2016, is very special: it’s 154 days since the start of the year and also the first day of 2016 in which you will begin to earn your own money.
What does this mean? All of the tax you will pay throughout the year can be lumped together, and it covers the first five months of the year!
The Adam Smith Institute (ASI) is an independent think-tank working to promote free market ideas. Each year they calculate Tax Freedom Day through local taxes, direct and indirect national taxes, and national insurance contributions as a proportion of the UK’s net national income (42.27% per cent in 2016).
Tax Freedom Day comes a little bit later than last year – four more days of tax were paid in 2016 and for the first time in fifteen years, the day is happening in June. Net national income increased by £34.6bn in 2015, but a further £35.4bn in taxes has been spent by the government: a £1bn deficit has appeared.
The ASI’s findings has prompted them to call for a raise in the National Insurance Contributions threshold, from £8,060 to £11,000 to match income tax. They report that this could have a positive knock-on effect for government pockets, as low-paid workers would be entitled to less benefits.
There are varying tax freedom days around the world – when is yours?
“It’s absurd that people on the minimum wage are liable for National Insurance Contributions, which raise their cost to employers and make it harder to move from benefits into work," said Dr Eamonn Butler, Director of ASI. "The poor are worst hit by regressive taxes like excise duties on what they buy.”
There are several elements to Britain’s tax code, which includes direct taxes, capital gains, inheritance, VAT, stamp duty, fuel duty, council tax, air passenger duty and corporation tax. If you have considerable wealth, then it’s likely your tax freedom day will have already been and gone before the rest of the country.
There are varying tax freedom days around the world – when is yours? In the US, freedom day fell on 24 April; a whole 40 days earlier than the UK and accounting for 31 per cent of the country’s income. Their tax day has come earlier this year due to lower federal tax collections, however people in America do spend more on taxes than food, clothes, and household bills. A look at longitudinal stats reveal that in 1900 the US tax freedom day fell on 22 January!
Taxpayers can reduce their tax bill through investing in a tax-free ISA, donating to Gift Aid schemes, and contributing to a pension scheme (within defined limits). PAYE employees can also investigate if they can submit a P87 form to claim back work-related expenses such as business mileage from HMRC. It’s also useful to complete a self-assessment form for PAYE to catch any calculation errors.
Let’s not forget, all this tax pays for our public services such as roads, parks, healthcare, social initiatives – we need tax, and tax needs us!