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Nearly 50% of UK adults don’t know how much money they can earn before tax

Do you know your audit from your elbow?

With the 31 January deadline looming for online self-assessment tax returns, we asked thousands of people to complete our Great British Tax Quiz to test their knowledge on the UK tax system – and the results are worrying.

Almost 50% of the 4,572 respondents didn’t know their correct personal allowance, the amount you can earn before you pay income tax, while more than a third were in the dark about how much they can pay into a tax-free Isa this year.

It’s important to know how the tax system works – particularly if you have to submit a self-assessment tax return.

Which? dispels some common tax myths – but first, give our Great British Tax Quiz a go to see how you fare.

Take the Great British Tax Quiz

To find out whether you’re a taxability liability or a basic-rate boffin, you can try out our Great British Tax Quiz below.


Know your tax-free allowances

If you submit a self-assessment tax return, you should make the most of all of your allowances, which can help to reduce your bill.

When asked whether someone could earn up to £7,500 tax-free by renting out a spare room to a lodger, just 31% of people said they could – and 50% said they didn’t know.

The statement is true, and refers to the rent-a-room scheme. It’s available to anyone who wants to rent out a spare room in their home, but you must live in the property to be eligible.

If you earn more than £7,500 a year, you’ll have to declare this to HMRC through a tax return.

Other allowances that could reduce the amount of tax you’ll need to pay include marriage allowance, dividend allowance and personal savings allowance.

How Isas actually work

When asked if you’re allowed to pay £25,000 into an Isa each year, 68% of people said they thought the statement was true, or didn’t know.

Only a third correctly said the statement was false. The annual Isa allowance is £20,000, which can be split between several types of Isas.

You can deposit up to £4,000 into a lifetime Isa, up to £2,400 into a Help to Buy Isa (with an additional £1,000 in the first month of opening the account), and up to £20,000 in either cash, stocks & shares or innovative finance Isas.

You can mix and match how to split the £20,000, or you can deposit the whole sum into one Isa.

You can only deposit money into one type of Isa in each tax year – ie. one cash Isa, one stocks & shares Isa, etc.

The real penalties for late tax returns

If you fail to hit the 31 January deadline, you may incur a late penalty.

More than half of survey respondents thought they’d be fined £50 for submitting a late tax return. In fact, fines are steeper than this – starting at £100 and increasing from there.

Get help to submit your tax return

If you haven’t yet submitted your tax return for the 2017/18 tax year, time is running out.

The Which? tax calculator is an online self-assessment tool that can calculate your tax return, and submit it directly to HMRC – helping to take the hassle out of the process.

You have until midnight on 31 January to send your return to HMRC, otherwise you could face a late penalty.

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