More than half of taxpayers (57 per cent) do not know how much Income Tax and National Insurance they pay, according to a poll commissioned by the Treasury. It accompanies the launch of HM Revenue and Customs’ (HMRC) new tax smartphone app which is part of a drive to increase tax transparency (you can find out more about how to download it here, or use it online here). So popular was the app and widespread the clamour from people wanting to know how their money is spent that the website crashed yesterday. Dubbed the “iTax” by The Sun, the app is a step in the right direction to making more people aware of just how much of the money they earn and spend goes straight to the taxman.
We pioneered the idea of a smartphone app with the TPA TaxBuster in November last year as part of our campaign for tax transparency. It’s great to see HMRC following our lead and taking innovative, albeit small, steps to make it clearer how much we really pay in tax. The latest initative follows the success of Ben Gummer MP’s campaign for every taxpayer to receive a tax and spending statement each year.
The biggest benefit of the app is to clearly state the total marginal rate of tax that an employee pays - for a basic rate payer that’s usually 32 per cent. The total marginal rate is a combination of Income Tax and Employees' National Insurance (NI). NI obscures public understanding of tax on earnings which is why so many people are unaware of what percentage of their earnings the taxman takes from their salary each month. This is why the 2020 Tax Commission recommends that NI should be abolished and replaced with a Single Income Tax. Our campaign video Income tax: call it what it is sets out the combined rates that individuals are really taxed at, and Matthew Sinclair has also explored this for the 2020 Tax Commission.
The app is not without its shortcomings though. Whereas the HMRC version has some information on how the Government spends our money, it is still way behind our TaxBuster app in explaining the effect of hidden taxes on our pay packet. For example, it doesn’t mention Employers’ NI which drives down income as employers invariably pass on the costs of paying Employers’ NI either via lower wages or the result is higher unemployment or higher prices. If we want real tax transparency then that must be recognised. Nor does it mention how much we hand over to the taxman in VAT and duties when we are at the tills. The TaxBuster app does explain this and HMRC should look to include this kind of information in future versions of their app.
Moves to increase transparency in our tax system should be welcomed but not mistaken for the cure of what ails it. Transparency will make the diagnosis clearer; taxes in the UK are overly complicated and an excessive burden on families and businesses. If we really want to reform the UK tax code so that it is simpler and fairer to understand then the answer is radical but realistic reform. The TaxPayers’ Alliance and the Institute of Directors (IoD) have set out six simple steps about what that reform might look like. The final report of the 2020 Tax Commission is a comprehensive plan for growth that would simplify the tax system, boost growth and leave more money in everyone’s pockets. With overwhelming pressures to kick-start the economy the Government would do well to follow the recommendations of Commission in the in the same way they are now mirroring the work of the TaxBuster.