People are paying more in income tax – take advantage of all your allowances
According to data from HMRC, income tax paid by the public has doubled over the past two decades. By 2019-18, which are the last available figures, £187bn was paid in income tax and the prediction is that this figure will be £199bn by 2021-22.
There will also be more taxpayers too – the estimated figure for 2021-22 is that there will be 32.2 million people in the system. There are various reasons for this, including population growth and people continuing to work for longer.
Bad news if you’re a big earner?
When HMRC estimated the number of taxpayers, it also predicted that the biggest leap would be for those who pay the additional rate – so, the big earners. The number of higher-rate taxpayers is actually expected to fall though, albeit slightly and temporarily.
A combination of the personal allowance increasing and the bump in the higher rate threshold has meant that higher-rate taxpayers have had things OK for a while. But the upcoming freeze in personal allowance and thresholds, which will remain frozen until 2026, will ultimately mean that more people will soon be paying more tax.
The Office for Budget Responsibility (OBR) separately – and independently – predicted that there would be around 1.3 million more people paying income tax, with a further million pushed into the higher-rate bracket. The Institute of Fiscal Studies, has estimated that, by 2026, 3% of all adults would be paying income tax as a result of the freeze. ‘Fiscal drag’ is a process whereby more people find they either have to start paying income tax or that they have unwittingly been pushed into the higher-rate taxpayer bracket.
The writing is on the wall for income tax and faced with this reality, it is time to make sure that you are making full use of all your allowances to ensure that you are not overpaying. These allowances could include your individual savings accounts (ISAs), also your pension(s). Get in touch with the team at Figurit, we are the experts in all matters of personal and business accounting and can go through your options. Becoming more tax-efficient now may help you deal with any increases up ahead.
For help with business or personal tax planning, call Figurit (formerly known as Lansdell & Rose) on 020 7376 933 or complete the form below.