Lack of understanding about tax spurs call for education

Accountancy professionals are calling for more education about tax, after research suggested most of the general public do not understand personal tax affairs, with young people in particular having only a very limited grasp of basic principles

Deloitte carried out a survey in partnership with YouGov asking over 2,000 people across the UK a series of tax questions and awarded a knowledge score based on their correct responses. The results revealed that the average person in the UK scored only 10.6 out of a possible 30, while almost half of people scored 10 or less.

Age had a significant impact on performance, with 18-24-year-olds achieving the lowest average score of 6.9. Results steadily increased with age, with over 55s achieving the highest average score of 12.3.

The majority of people surveyed (78%) said that in general, people do not know enough about tax. Meanwhile, 76% said that there should be more tax education in schools.

Matt Ellis, managing partner for tax and legal at Deloitte, said: ‘There is a clear gap in people’s knowledge of everyday tax issues. It’s important that people – especially younger generations entering the workplace for the first time – understand what is deducted from their pay slip and why. Education is essential, and our research shows there is both reason and appetite for this to begin at school.’

Respondents performed strongly when asked whether additional sources of income are taxable. A high percentage knew that tax is paid on income (over a threshold) from letting out a second property to holidaymakers (79%), and advertising income made by an influencer on Instagram (61%). The majority also knew that no tax was due on low income from items sold on eBay (71%) and not at all on lottery winnings (66%).

However, people struggled when asked about issues such as tax codes and rates. Less than a fifth (19%) knew what the top rate of income tax in the UK (or Scotland) was, and almost half (46%) were unable to identify that a tax code of 1250L corresponds to an annual allowance of £12,500.

Gift aid was another area where uncertainty prevailed. Nearly a third (32%) were unaware that a gift aid confirmation enables a charity to claim 25p back in tax for every £1 donated. Furthermore, only 16% of those earning £50,000 or more understood that they could claim back a further 25p in tax for every £1 donated to a charity.  

The research also showed that understanding tax is likely to influence people’s attitudes towards it. Currently, only 19% feel the tax system is fair. However, the analysis showed that the more respondents knew, the more likely they were to say that the UK tax system is fair.

The findings are backed up by another survey conducted by the CBI London Business Survey in partnership with Wilson Wright, the London School of Economics (LSE) and Russell Reynolds Associates.

This found that more than three quarters of London businesses (77%) would like to see a place for financial education within the national curriculum, with nearly half strongly in favour of the proposal.

Adam Cramer, CEO and partner at Wilson Wright, said: ‘While vitally important, academic skills alone are not enough to succeed in business and I think that is one of the reasons why respondents to the CBI London Business Survey backed the idea of including financial education in national curriculum so strongly.

‘An academic knowledge of maths, for example, is very useful for an entrepreneur to have but young people also need guidance on how they can deploy this academic knowledge in practice so that they can make the most of their entrepreneurial potential. It is not necessarily obvious how to make the most of this knowledge and so financial education is something that should be taught.’

Deloitte Tax Education Gap report is here
CBI London Business Survey is here

By Pat Sweet

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