You may have seen last year at this time we wrote this blog about ‘Tax Freedom Day’. This year, in light of the continuous high energy prices, higher interest rates and tax changes not keeping up with the inflation levels that remain higher than we have seen for a generation – things are still far from the more stable environments we had come to expect.
The figures for 2023 will not be published until later this year, but we can expect tax freedom day to be even later this year than last year’s date of 8th June1.
What is Tax Freedom Day?
Let’s start with a reminder – what is tax freedom day? 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 report for 2022
- In 2022, we worked 159 days just to pay our tax bill. Putting it another way, for the calendar year of 2022, only from 8th June onwards were we working for ourselves.
- Tax freedom day is now later than at any time since 1995 (as far as the best quality data goes back), and continues to trend later each year, with 2023 expected to continue that trend.
- Everyone’s tax freedom day is different and each of us can use allowances and reliefs to move that date.
In 2022, every penny the average person earned up until June 7th went straight to HMRC. From June 8th (tax freedom day) onwards, the average person got to keep every penny they earned.
Every individual will have a different Tax Freedom Day
Every individual will have a different tax freedom day. In theory it will come later for higher earners and earlier for lower earners and the unemployed. In practice, this isn’t necessarily true because HMRC does not simply tax income but also taxes different types of consumption, as well as investments, at different rates. This includes indirect taxes (such as VAT, fuel duty and council tax) as well as direct taxes (Income Tax and National Insurance).
Moving your ‘Tax Freedom Day’
Whilst tax is an important and widely accepted part of life, paying for certain public services, many of which have a social value far greater than their financial cost, there are a few things that everyone can do to move their tax freedom day legitimately. Making sure your assets and liabilities are in the right:
- name (should the assets be in your name, your partner’s, or both your names?)
- ownership (is the person you want to benefit nominated correctly?)
- tax shelter (are the various allowances and reliefs used to ensure you do not lose money unnecessarily to HMRC?)
By ensuring the right name, ownership and tax shelters for your assets you can, legally and ethically, move your tax freedom day. This is a significant part of the value that a financial adviser can provide for you.
Tax freedom day is not a literal event. Nothing actually happens on that day, but it is meant as an illustration of the personal tax burden, and is a thought provoker to really bring home the extent of taxation and how you can help address it. I hope this helped you also.
1 Tax Freedom Day — Adam Smith Institute https://www.adamsmith.org/taxfreedomday
Approver Quilter Wealth Limited & Quilter Mortgage Planning Limited. 17 April 2023
You may also be interested in our downloadable Factsheet…
Make the most of your tax allowances and reliefs
Every year the government provides allowances and reliefs available for all taxpayers. Are you making the most of these?
Read, or download to read later, our Factsheet to remind yourself of the opportunities available to you for becoming more tax efficient.