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If you are a self employed person you have probably only recently finished grappling with your taxes – but more people need to get to grips with the basics of tax, according to a new survey.

New research from Fidelity International has found that the nation is suffering from high levels of tax illiteracy – an estimated 33 million UK tax payers are confused about tax.

Fidelity's report has found that over one in seven UK taxpayers admit they don't even know which tax band they are currently in. And there seems to be even more confusion amongst those that claim to know – with over a quarter of people with taxable income in excess of £50,000 thinking they only pay a basic rate of tax.

This confusion could explain the inertia of the population to make the most of the tax efficient financial products available to them – why two in five of those surveyed have yet to take any action to make themselves more tax efficient. Indeed, a quarter believe there is nothing they can do to reduce their tax liability.

This lack of knowledge could mean that people are needlessly gifting money to the taxman, simply because their finances are not tax efficient.

Paul Kennedy, head of tax and trust planning at Fidelity International, says: "Just as the Government takes a slice of your earnings in tax so too does it take a slice of the returns you make on your finances. By planning our finances wisely, we can make them more tax efficient. Tax efficient, simply means arranging things in a way so that we keep the tax on our finances to a minimum – and that means more for us and less for the taxman."

Do you know if your self employed finances tax efficient? Are you needlessly handing over money to the taxman? The only way you can know is by talking to a financial professional who understands how tax works and understands self employed financial products.

SOURCE: Fidelity, 13/11/09

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