UK Public Lack Knowledge of Tax Codes, Survey Finds

British people, especially young people, lack understanding of personal tax issues and the wider tax code, a new survey has found.

The survey, commissioned by accountancy firm Deloitte, found that around 80% of the public don’t know what the top rate of income tax in their region is.

It’s 45% in England, Northern Ireland, and Wales and 46% in Scotland.

Nearly half (46%) of respondents didn’t know that the tax code 1250L refers to the annual tax-free personal allowance of £12,500.

The survey, conducted by YouGov, polled 2,000 adults about their knowledge of the tax system and assigned them a score out of 30. The average score earned was 10.6 and almost half of those surveyed scored less than 10.

Older people were more knowledgeable about tax issues, with over-55s achieving the highest average score, of 12.3. 18 to 24-year-olds scored an average of just 6.9.

Matt Ellis, managing partner for tax and legal at Deloitte, said: "There is a clear gap in people’s knowledge of everyday tax issues. It’s important that people — especially younger generations entering the workplace for the first time —understand what is deducted from their payslip and why.”

Respondents also lacked a clear understanding of Gift Aid. 85% of respondents earning more than £50,000 were unaware of Gift Aid rules, while a third of all respondents didn’t know that scheme allows a charity to claim back 25p in tax for every £1 of donation received.

However, the public had a better grasp of some tax issues. 61% knew that income earned by Instagram users for advertisements—for sponsored content, or 'sponcon'—would be subject to tax. And 80% knew that income earned by letting out a second property as a holiday home would, above a certain threshold, be taxable.

If you make a mistake on your taxes, including failing to declare income that should be taxable, you can be hit by fines. “Careless” errors attract a maximum penalty of 30% of the tax under-assessed. Errors that are judged to be “deliberate” can earn a penalty of 70% or up to 100% if the taxpayer then tried to conceal the error.

However, there’s some evidence that HM Revenue & Customs is becoming less generous when assessing whether errors were innocent or deliberate.

While in 2012-13, 5,000 penalties were issued to taxpayers for “deliberate” actions, including understating income, the figure had risen to 15,000 by the following year—16% off all penalties issued.

Understanding the tax code has become more crucial as the number of self-employed people, who are required to complete self-assessment returns, has risen, to a record high of 4.9 million in March of this year. Accordingly, the number of people fined by HMRC for paying their self-assessment tax 30 days late has risen, to 331,000 people for the tax year 2016-17, the last year for which full data is available. That’s up 16% from the year before, when 291,000 were hit with fines.

Late payment of self-assessment taxes earns a penalty of 5% of the unpaid tax at 30 days, six months and 12 months after the 31 January deadline.

Lack of knowledge about tax systems didn’t just have implications for handling personal tax but also for how the public regards the tax code overall. Deloitte’s survey found that the more knowledgeable about the tax code people are, the more likely they are to regard it as fair and the less likely they were to want to cut taxes.

Overall, 19% of respondents found the tax system “fair” or “very fair,” while 24% said it was “unfair.” More than half said the system was “neutral” or that they didn’t know.

“These results show a clear interaction between understanding and perceptions of fairness,” Daniel Lyons, head of tax policy at Deloitte, said. “Educating people on tax affairs could help to inform both people and policy. In order to ensure a UK tax system in which people are satisfied with how much they pay and why, education is key.”

HMRC defended their provision of information about the tax system.

“We’ve worked hard to get tax right for everyone by providing help to anyone who needs it. Over 20 million people have signed up to use personal tax accounts to manage their tax affairs online quickly, simply, and whenever they want,” a spokesperson said.

“Customers can also get information and help from our mobile app, virtual assistant, web-chat service, webinars, YouTube videos, and on Twitter.”