Money News

Every penny earned before lunch is taken by the Taxman

By Martin Fagan - news@consumerchoices.co.uk

Thanks to National Insurance and VAT, a basic rate taxpayer actually pays 43% tax, says Fidelity.

Brits who wonder why they work hard but always seem to struggle financially might be surprised to discover that every pound they earn before 1pm goes to the taxman, according to calculations from asset manager, Fidelity International.

Taking VAT and National Insurance (NI) contributions into account, Fidelity’s research found a basic rate tax payer effectively pays 43% on each new pound they earn and spend.

This means that for every day they work they won't be earning any money for themselves until just past one o'clock in the afternoon. For higher rate taxpayers, all the money they earn before 1.45pm goes to the taxman.

"The fact that almost half their daily earnings goes to the taxman will come as a shock to most people,” said Paul Kennedy, director of tax planning at Fidelity International.

“With the recent increases to National Insurance and VAT, the headline rate of basic income tax at 20% gives a totally false impression of just how much tax the government is actually taking."

According to the influential Adam Smith Institute, all Brits now work an additional five weeks for the government compared to the mid-1960s.

The Institute has named Monday 30 May Tax Freedom Day - the day when people stop working for the government and start working for themselves.

This is because every penny earned in the UK between January 1 and May 29 will be taken by the taxman to fund government expenditure.

To ensure taxpayers keep more of what they earn, Fidelity is urging Brits to take advantage of every tax break available to them, including making use of their annual ISA allowance, claiming tax relief on pension contributions and using their Capital Gains Tax (CGT) allowance.