VAT Increase Delays Tax Freedom Day

December 30, 2010 Taxation in UK

Few PoundsThe UK Government’s upcoming increase to the national Value Added Tax rate will push the country’s Tax Freedom Day back by three more days.

On December 29th the UK Adam Smith Institute (ASI), an independent financial think tank, revealed that the average UK taxpayer will spend approximately 149 days worth of income in 2011 just to pay their personal tax bill. The Institute completes the calculation every year, based on the latest average earnings levels of UK taxpayers and the country’s applicable tax rates. The calculated date is commonly referred to as the national Tax Freedom Day (TFD).

The UK TFD date for the 2011 year will fall on May 30th, compared to May 27th in 2010. According to the Institute the three extra days can be attributed to the upcoming increase of the Value Added Tax (VAT) rate, which is will see the levy rise from 17.5 percent to 20 percent. The ASI’s executive director Tom Clougherty commented on the results of the analysis, saying, “…the fact that we spend almost five months working for the State – and only seven months working for ourselves and our families – is a shocking indictment of big, wasteful government.”

The director of the Adam Smith Institute Dr Eamonn Butler also commented on the findings, saying that the Government should consider instating several targeted tax cuts within 2011, in order to stimulate economic growth and ease personal taxation liabilities. Although in a long-term perspective the director suggested that the entire tax system should be flattened, as he believes it would be ultimately more beneficial to the economy.

Internationally, several other countries also have current calculations for their respective TFD dates. According to the Tax Foundation, the TFD date for the US fell on the 9th of April in 2010. The latest research by the Swedish Taxpayers’ Association indicates that the national TFD date was on July 20th in 2010, and according to the international accounting form PricewaterHouse Coopers, Belgium’s TFD was on June 8th.

Photo by René Ehrhardt