UK taxpayers will receive letters providing them with a tax breakdown of exactly what their tax is spent on from this month.
More than 24 million people will receive their first Annual Tax Summary from HM Revenue and Customs (HMRC) from this November onwards in an unprecedented move to make the system more transparent.
Each statement will show exactly how the Exchequer spends an individual’s tax and all taxpayers should receive their letters before the end of 2014.
Taxpayers that complete self-assessment returns can access their summary online while 16 million PAYE taxpayers with a tax coding notice from HMRC for 2013 should receive letters in the post in the next seven weeks.
Putting 2012 budget plans into action
Chancellor of the Exchequer George Osborne first announced the concept of summaries in the 2012 Budget to make tax more understandable for UK residents.
Levels of tax and National Insurance payments from the previous year will be covered in addition to how these payments contributed to public expenditure.
The Chancellor said it was important that taxpayers understand the system and added that the government is keen to follow up on previous promises.
He described it as a “revolution in transparency” with taxpayers now able to see where their hard-earned money is spent.
A more transparent tax system
It was initially announced that around 20 million people would receive the summary detailing the 2013 to 2014 tax year but the Chancellor announced in April that a further four million people would receive the breakdown summary – including PAYE taxpayers who have recently been in contact with HMRC regarding tax calculations for previous years.
This covers those with complicated or changing circumstances, such as those who switch jobs or change salary by large amounts.
A total of 29.9 million people pay tax in the UK while anyone who does not receive a tax summary can use HMRC’s tax calculator to estimate their tax bills.
The application is available on both the Apple app store and Google Play, and should help people who are struggling to calculate how much tax they might pay.
Most tax is usually deducted automatically when people receive payments but others who declare earnings would have to calculate it themsleves.
Managing tax payments
Financial management is crucial here as sufficient funds must be available to cover any outstanding tax payments.
Budgeting for this is essential and it is why managing spending with the use of a prepaid card could be one solution.
Only funds on the card can be spent, meaning it is impossible to overspend or build up debts as no credit facility is available.
This should ensure that some funds can be kept in reserve to cover any tax payments, as and when they are required.