The Treasury may be looking to plug the gaps in the tax code but, this year alone, Britons will give the Government a £6.9bn present. That is the figure that IFA Promotion estimates over 36 million people will pay in unnecessary tax in 1998.
Why? According to the report, the 1998 TaxAction Investigation, the main problem is inertia or pure blind ignorance.
The war on wasted tax is needed now more than ever, it would seem. The average UK taxpayer is now wasting £189 a year through not taking action. So just what could be saved? According to the report, self-assessment costs are the main culprit. Some £1.47bn is incurred by people paying late and paying the wrong amount.
Inheritance tax is also a major area where the Treasury wins through the general public's failure to undertake efficient tax planning – up to £1.1bn will be wasted because people do not plan ahead.
Significantly, some of the unnecessary losses are remarkably simple. The 29 million people with long-term bank and building society accounts could save £1.06bn by exploiting the tax breaks of Tessas or by registering to receive gross interest.
Other points include:
£844m lost through employers not operating profit-related pay schemes which allow staff to receive up to £4,000 tax-free each year.
Up to £764m wasted by existing relevant unit-trust holders and shareholders mainly not making use of Peps since they were introduced in 1987.
Up to £629m wasted by 1.5m simply by misuse of tax-free personal allowances. This mainly involves married couples where only one person is working.
£458m could be saved by 600,000 higher-rate taxpayers covered by company pension schemes if they made use of AVCs or FSAVCs.
£228m through people paying capital gains tax which could be avoided by the systematic use of Peps and the annual exemption.
£138m is wasted through people not using friendly society policies or life insurance arrangements.
£28m is lost through non- or basic-rate taxpayers not reclaiming tax from gilts and National Savings. In addition, £58m is lost by large numbers of people holding on to gilts or National Savings accounts which pay very low rates and which are inappropriate to their tax status.
£131m is wasted by people not giving to charity through schemes such as Give As You Earn or Gift Aid. The Treasury will add to the donation with tax that has already been paid.
IFAP chief executive Anne-Marie Martyn says: "Much of the waste is through simple apathy on the part of taxpayers and most people would be richer simply by arranging their finances better and by avoiding paying unnecessary tax. In many cases, spending a little time with an independent financial adviser could really pay dividends.
"Paying the taxman more than necessary is effectively making a present to the Exchequer. Many people pay tax when they do not need to at all and an enormous number of people are paying too much income tax.
"An independent financial adviser could help millions of people plan their finances more efficiently."
How the Wasted Tax investigation was conducted
IFA Promotion commissioned leading financial analyst Mor-Pace to conduct a three-month investigation into the amount of tax "wasted" in Britain each year.
The result – Wasted Tax 1998 – is based partly on
a specially commissioned analysis of the Inland Revenue's own Personal Income Survey. This survey is primarily conducted for internal purposes and is an in-depth analysis of 70,000 individual cases.
Where additional data was required (several of the conclusions in the report are "informed assumptions") the TGI survey, conducted by BMRB among 26,000 adults each year, was used. Throughout the survey, "wasted tax" has been calculated on a conservative basis and, if anything, the £6.9bn total figure is an under-estimate of the "actual waste".