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A new study by accountants and business advisers BDO Stoy Hayward LLP has revealed that the individual taxpayer has borne the brunt of the Government’s tax policies since they came to power in 1997.

The study follows the announcement by the Adam Smith Institute that Tax Freedom Day in 2008 falls on Monday 2nd June, seven days later than when the current Government came to power in 1997.

Tax Freedom Day calculates the date on which the average UK taxpayer would stop working to pay their share of the nation’s tax bill and start earning money for themselves.

The Firm’s study reveals several key areas of taxation where the ‘man on the street’ is feeling the pinch, including:

•  Income Tax and National Insurance - the average taxpayer is now working for nearly two and a half months to pay their share of these taxes alone – that’s 10 days longer than in 1997/98;
• Stamp Duties - the number of days the average taxpayer works to meet these taxes has more than doubled to four days since 1997/98 due to rocketing house prices and a hike in the top rate from one per cent in 1997 to four per cent in 2000 applied to both residential and commercial property. In fact, the take from Stamp Duties (including Stamp Duty Land Tax) has increased by over 300 per cent since 1997/98;
• Council Tax - UK taxpayers are working 34 per cent longer (one week in total) to pay their share than they were in 1997/98 as a result of the Government more than doubling the tax take to £23.7 billion over the 10 year period to cover the increasing expectations and burden placed upon local government

“The dramatic increases in UK taxation over the last decade will come as a shock to many people” says Stephen Herring, Senior Tax Partner at BDO Stoy Hayward. “In particular, the length of time it is taking for the individual taxpayer to pay their share of income tax may come as a surprise to many as the Prime Minister has stuck to his headline 1997 pledges not to raise the higher or basic rates of income tax, and has cut the basic rate from 23 per cent to 22 per cent in 2000, and then 20 per cent from 6th April 2008 albeit at the cost of the abolition of the 10 per cent rate”.

“He has achieved this increase in the total tax take by increasing personal tax allowances and tax bands only in line with the Retail Price Index, while salaries have increased well in excess of inflation each year, meaning that more people than ever before are sucked into the 40 per cent top tax band. This phenomenon is known as ‘fiscal drag’ and should rightly have a reputation as the most notorious stealth tax applied by all governments”.

Inheritance Tax and Capital Gains Tax
Despite the recent level of public and media scrutiny around Inheritance Tax and Capital Gains Tax, the firm’s study reveals that the average taxpayer has to work only one day to pay their share of these taxes. This is because the high thresholds for these taxes mean that they do not affect the vast majority of taxpayers. However, the amount of money raised by these taxes has increased by 143 per cent and 269 per cent respectively since 1997/98 as the land values and estates of the wealthy have increased significantly in value.

Stephen Herring commented: “Whilst the total amounts collected by Inheritance Tax and Capital Gains Tax are relatively small, they represent a significant burden on family businesses, the affluent householder at death and well-to-do investors. Furthermore, their burden has continued to rise significantly since 2000 as a consequence of the phenomenal increase in residential property prices despite this year’s uncertain outlook”.

Government not so bad for many businesses despite criticism
Contrary to popular belief, BDO Stoy Hayward’s study shows that the Government’s policies have been somewhat more favourable towards businesses than the individual when corporate taxes are analysed. For example, only two weeks of the five months it takes to reach Tax Freedom Day go to pay Corporation Tax. This has actually decreased by a full working day since 1997/98, with Corporation Tax receipts falling for the first seven years of the Labour Government. However, the total take for Corporation Tax has rebounded in more recent years, driven by strong corporate profit growth and HM Revenue & Customs (HMRC) stepping up their efforts to counter tax planning by large companies.

Stephen Herring remarked: “While business taxes account for a smaller proportion of days in the run up to Tax Freedom Day, many small businesses would complain that the increasing complexity of the tax system in the last 10 years has created additional burdens not fully reflected by the tax liabilities. The sheer volume of tax legislation has more than doubled in Gordon Brown’s 10 years as Chancellor and Prime Minister. Similarly, many international businesses are increasingly aware that other developed countries are now offering much more favourable tax systems for the global business”.

Paying lip service to green taxes?
In spite of the increasing profile of green taxes – comprising Air Passenger Duty, Landfill Tax, Climate Change and Aggregates Levies – they still amount in total to just a single day of the average taxpayer’s time.

Stephen Herring added: “In addition, the reduction in the levels of fuel duty and reduction in VAT on household fuel from eight to five per cent in 1998 indicates that in reality, the green agenda has been at the bottom of the Chancellor’s de factor list of tax
priorities”.

Tax simplification - top five tax priorities for the Autumn PBR
Under Gordon Brown’s Chancellorship it would be fair to say that UK taxation legislation became more complicated for both businesses and individual taxpayers. However, the current Chancellor, Alistair Darling, demonstrated at last year’s PBR that he is more inclined towards tax simplification by the changes he made to both Income Tax and Capital Gains Tax. However, there are still many areas within personal and business taxation which are overcomplicated and place an unnecessary burden on taxpayers to ensure the increasingly demanding expectation from HMRC for even more precise compliance.

Darling should therefore continue to demonstrate to UK businesses and taxpayers his commitment to the cause of tax simplification by the introduction of further tax simplifying measures.