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Is tax too ‘taxing’ for you?

Man peering through folders

Despite TV adverts claiming the contrary, the rules surrounding tax and allowances are so complex that many of us don’t understand them. Worse still, it’s those on the lowest incomes who are most confused.

How many of us can honestly say we know, down to the last pound, what our annual tax-free earnings allowance is?

Do you know whether you’re entitled to any tax credits, or how to reclaim tax if you’ve overpaid?

And what about Individual Savings Accounts – or Isas? Do you know how much you’re allowed to invest in an Isa each year, how to move cash from one to another, or what the advantages of Isas are over ordinary savings accounts?

According to a report from HSBC bank, more than 80% of us don’t know how we’ll be affected by the start of the new tax year on April 6, as personal allowances and Isa limits change. Furthermore, almost half of adults mistakenly believe it’s always compulsory to pay tax on savings (even if you earn less than your annual personal allowance).

Inexperience can lead to overpayment

Nowadays, as a personal finance specialist, I have a pretty solid understanding of the tax rules that apply to me. I still see tax as a complex subject with the potential to drive any sane person mad – but I’m aware that it’s important for me to be sure I’m not overpaying tax, or underpaying what I owe.

Back when I started my first job, however, I had no idea how the tax system worked. Rather naively, I expected that my employer’s payroll department would ensure I was paying the right amount of tax.

Not so – and I was only alerted to their mistake (which by that time had already cost me more than £1,000 in overpayments) when a colleague happened to ‘accidentally’ glance at my P60.

Had that slightly nosey individual been less interested in other people’s pay-packets, I’m sure I’d never have seen that £1,000 again. As it was, I managed to claim my money back.

We’re troubled by tax

When it comes to tax rules and allowances, the stakes are high. Not claiming what you’re entitled to, or over-paying, could cost you huge amounts of money. Meanwhile, flouting the rules or underpaying tax could see you face severe consequences.

According to HSBC, there is a ‘distinct lack of awareness’ of tax issues among people on lower incomes. Effectively, those who will be hit hardest by overpaying tax, or failing to claim the credits they’re eligible for, are least likely to have their tax affairs in order.

This research follows a recent study by Unbiased.co.uk, which claimed that British people ‘gift’ the taxman £13.5bn each year by making mistakes such as failing to claim tax credits, saving in ordinary deposit accounts instead of Isas and poor inheritance tax planning.

So whose fault is it that tax is so taxing – and should there be changes to the system so that fewer people are caught out by its complexities? Or, is it up to individuals to educate themselves and look after their own tax affairs?


It is the reason why people employ accountants – any small business should. Larger companies employ accountants full time.

If you are poor – then a trip to your local Citizens Advice Bureau will usually point you to free tax advice – At least until The Coalition forces the CAB closures to save money.

On PAYE – provided you read the documentation and are clear and honest – tax is taken care off.

It is really only the self employed that can really suffer – but as they are small businesses the answer is simply employ an Accountant – A good one will save you his fees every year.

I have been self-employed – employed in the private sector – and in the public sector – never really found a problem.

I’m not surprised by this study – it can be incredibly hard to find out what you’re entitled to. Even calling the HMRC helpline doesn’t always help. There is some good, clear information on allowances etc on DirectGov, but the rules are so complicated that it doesn’t always clarify how they affect your own individual situation.