Perspectives

The Tax Education Gap – is it time to talk tax?

Most of us pay it, some bemoan it, and new research suggests not all of us get it.

Whatever your take on tax, it’s a fact of life. From VAT on the weekly shop to pounds deducted from pay, we all add to the public purse.

But new Deloitte research suggests, when it comes to the T-word, we’re not as clued up as we should be. And many would like to see more tax education in schools.
 

The generation gap

Working with YouGov, we carried out the Tax Education Gap survey earlier this year, posing a series of everyday personal tax questions to gauge knowledge across the UK.

More than 2,000 adults took part, with the survey touching on subjects such as tax codes, rates and allowances. And the results were eye-opening.

The average person’s score was just 10.6 out of a possible 30, with almost half getting 10 or less. There was also a clear link between age and awareness, with 18 to 24-year-olds achieving just 6.9 and over-55s scoring, on average, 12.3.

Interestingly, knowledge seems to be shaped by today’s social trends, with 61% aware that successful Instagram influencers could pay tax on advertising income over a threshold. Most knew it could be levied on money made from letting out a second property as a holiday home (79%) but not on small-scale eBay sales (71%). Sixty-six percent recognised that lottery winnings were tax-free.
 

Personal tax pitfalls

There’s no denying the UK system can be tricky to navigate but which areas, according to our research, proved most taxing?

  • Less than a fifth (19%) knew what the top rate of income tax was. Almost half (46%) failed to recognise that a tax code of 1250L corresponds to an annual allowance of £12,500.
  • Gift Aid was another topic where people’s knowledge came up short. Nearly a third (32%) were unaware that a Gift Aid confirmation allows a charity to claim 25p back in tax for every £1 donated. Only 16% of those earning £50,000 or more knew they could claim back 25p in tax (with slightly different numbers in Scotland) for every £1 given to charity. 
  • There was also a widespread lack of understanding about the High Income Child Benefit Charge, regardless of whether participants were parents and their level of income.
  • Only one in five said they had an online Personal Tax Account, launched in 2015 by HMRC to make life easier for us. Of those who had one, most found it helpful.

Daniel Lyons, Head of Tax Policy at Deloitte, comments: “It is vital that people are aware of tax and their obligations. Understanding your tax code means you can ensure you are paying the right amount of tax, while a lack of understanding around Gift Aid may mean a proportion of tax relief on payments made to charity could go unclaimed.”
 

Tackling the topic at school

The knowledge gap should come as no surprise to those who participated in the survey – most (78%) agreed that, in general, people don’t know enough about tax. In fact, 76% felt the subject should feature more often in schools.

So, do they have a point? Matt Ellis, Managing Partner for Tax and Legal at Deloitte thinks so.

“There is a clear gap in people’s knowledge of everyday tax issues - especially in the younger generation,” he says. “Education is essential, and our research shows there is both reason and appetite for this to begin at school.”

Covering tax in the classroom would certainly help. Today’s workplace can be complex and young people are at the heart of our burgeoning gig economy (more than half of those involved are believed to be aged 18 to 341). Flexible, short-term employment, often as an additional income stream, has tax implications and people need to understand these.
 

Paying fair

Combined with National Insurance Contributions, tax and duties bring in around £700 billion a year for the UK Exchequer. But do people perceive it as fair? It’s a debate that isn’t going away any time soon.

The survey showed that levels of knowledge influences attitudes – the more we know about the system, the more likely we are to think it’s fair. Those who achieved a higher score were less inclined to want tax cuts.

“These results show a clear interaction between understanding and perceptions of fairness,” continues Daniel. “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.”

Closing the Tax Education Gap makes sense. If people knew more about their personal tax – how it’s calculated, their liabilities and where it goes – could perceptions change? Would it seem fairer? Could demystifying the tax system benefit the 6% of people registered for self-assessment who missed the January deadline? Probably.

It would certainly help more people across the UK to understand their money. And that can only be a good thing.

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1 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/687553/The_characteristics_of_those_in_the_gig_economy.pdf

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