‘Worrying gaps’ in tax knowledge uncovered ahead of self-assessment deadline

A Great British tax quiz from Which? has uncovered “worrying gaps” in consumers’ knowledge about tax perks and penalties.

More than 4,500 people took the quiz, answering “true”, “false” or “don’t know” to a range of tax-related questions.

Which? said its survey had revealed “worrying gaps in consumers’ tax knowledge”.

Just over half of those tested were unaware how much money can be earned tax-free, the survey found.

When Which? asked if a person could earn up to £13,850 without paying any tax in the 2017-18 tax year, more than half (51%) believed this statement to be correct or did not know.

Less than half (49%) correctly said this statement was false, as the tax-free allowance for 2017-18 was £11,500.

And despite Isas being a popular place for people to hold their cash, many people were unaware of the annual limit for the amount of money that can be put in these savings accounts.

When asked if a person is allowed to pay £25,000 into an Isa each year, two-thirds (68%) said they thought the statement was true or did not know, despite millions owning an Isa account in the UK.

Just a third (32%) correctly identified this statement as false, as the annual tax-free allowance for Isas is £20,000.

The findings were released ahead of the self-assessment tax return deadline, which is January 31.

Taxpayers who this applies to must get their returns in by this date, and pay any tax owed, or else face potential fines starting at £100.

To help consumers, Which? has an “easy-to-use and jargon-free” tax calculator with personalised tips which allows for returns to be submitted directly to HM Revenue and Customs (HMRC).

Gareth Shaw, head of money at Which?, said: “There are clear gaps in the nation’s knowledge of the tax system – with many people not even aware of the basic tax-free allowance.

“As many tackle their tax returns in the coming days, a clear understanding of the tax system will be invaluable and help thousands avoid mistakes, which could prove costly.

“Take time to brush up on the basics, and consider using online tools that will help to demystify the jargon and reduce stress.”

An HMRC spokesman said: “We’ve worked hard to get tax right for everyone by providing help to anyone who needs it.

“Over 15 million people are using personal tax accounts to manage their tax affairs online quickly, simply, and whenever they want.

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

The Which? tax calculator can be found at www.which.co.uk/money/tax-calculator/.

Further information about self-assessment is also available at www.gov.uk/self-assessment-tax-returns.

How tax savvy are you? Here are the questions asked in the Which? Great British tax quiz with the answers. Percentages show the proportion of people who answered “true”, followed by “false” and finally “don’t know”:

1. A person could earn up to £13,850 income (in 2017-2018) without having to pay any tax – 34%, 49%, 17% (Answer: False. The tax-free allowance for 2017-18 was  £11,500.)

2. A person could be fined £50 if they missed the deadline to complete their tax return – 51%, 21%, 28% (Answer: False. A person could be fined an initial penalty of £100, followed by further potential penalties.)

3. A person is allowed to put up to £25,000 into an Isa (Individual savings account) each year – 38%, 32%, 31% (Answer: False. The annual Isa savings allowance is £20,000.)

4. Higher-earners can reduce the amount of tax they pay by making charitable donations – 63%, 12%, 26% (Answer: True. If you pay 40% or 45% tax, you can claim extra tax relief on donations you have made. If you are a basic rate taxpayer, Gift Aid means the charity can claim tax relief on your donations.)

5. A person does not need to pay tax on bitcoin profits (ie monetary profits made from a type of digital currency) – 14%, 31%, 54% (Answer: False. Bitcoin and other cryptocurrencies are treated as an asset – so if you sell them for a profit, you need to check if you owe any capital gains tax.)

6. A person can earn up to £7,500 tax-free by renting out a spare room to a lodger – 31%, 19%, 50% (Answer: True. The rent a room allowance lets you earn up to £7,500 by renting out a room.)

7. A person earning £25,000 pays a higher proportion of their salary in National Insurance than someone who earns £50,000 – 24%, 39%, 37% (Answer: True.)

8. A person does not have to pay National Insurance if they are self-employed – 7%, 79%, 14% (Answer: False. Self-employed people do need to pay National Insurance, but are charged a lower 9% rate, rather than 12% for employees.)

9. If a person does not pay National Insurance, they may not get the full state pension – 78%, 6%, 15% (Answer: True. In general, people need 35 years’ National Insurance contributions to get the full new state pension, and at least 10 years’ to get anything. But if you are a parent or a carer you can earn National Insurance credits that count towards your pension.)

10. A person does not need to pay National Insurance if they are retired – 62%,
13%, 24% (Answer: True. You do not have to pay any National Insurance once you reach state pension age. And because you only pay it on earned income, you will not need to pay it if you retire early and start drawing a pension or living off savings.)

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