Today is Tax Freedom Day - what is it?

Tuesday, 29th May 2018, 10:30 am
Updated Tuesday, 29th May 2018, 1:22 pm

May 29 is a day of celebration in the UK with Tuesday marking Tax Freedom Day, when the average worker starts earning for themselves.

After five months, or 148 days, employees have earned enough to pay their tax bill.

What is Tax Freedom Day?

In  short, it is the first day of the year the average worker begins earning for themselves. This year, up until 28 May, every penny earned by the average person went to the taxman.

Tax Freedom Day, or 29 May, marks the moment when workers effectively begin keeping the money they make.

How does this year's Tax Freedom Day compare to previous years?

It falls three days later than 2017 and is in fact the latest date it has fallen on since 1995 - as far as the best quality data goes back.

That means the average worker has been working longer to pay the taxman and has less time to earn for themselves.

Who calculates Tax Freedom Day?

The research is put together by the Adam Smith Institute, an independent, non-profit and non-partisan think tank based in London.

Named after Adam Smith, a Scottish moral philosopher and classical economist, they aim to promote free market, neoliberal ideas through research, publishing, media outreach, and education.

Who is an 'average person'?

There isn't one. Due to the  proportional tax system, everyone will have their own tax freedom day. In theory, low-earners and the unemployed will have an earlier date, with high-earners having to wait until later in the year.

But it isn't quite so straightforward because HMRC does not simply tax income but also taxes consumption, investment and '˜sin' activities at different rates.

How is Tax Freedom Day calculated?

The ASI calculate total tax take, so both indirect taxes, such as VAT and Corporation Tax, and direct taxes, like Income Tax and National Insurance.

They take into account depreciation and foreign investment earnings, as is standard around the world, measuring total taxes over net national income, not gross domestic product. This gives a closer approximate net wealth creation rather than economic activity.

The research also monitors  the Office of National Statistics who regularly revise tax receipts and net national income statistics which means the ASI have to react and revise past Tax Freedom Days.

Is Tax Freedom Day set in stone?

It can since data is proxied from government and OBR forecasts and financial year numbers. That is because most recent figures are not available up-to-date for calendar years.

When the true figures become available it is revised.