Only 48% of people say they know how much tax they are paying, but even then, huge confusion around taxes means that many will be far from the truth. According to Hargreaves Lansdown, women, the middle class (ages 35 to 54) and renters are the least likely to know what they are paying in taxes.
Disturbingly, the less people earn, the less likely they are to know what they are paying in taxes.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, spoke about how people can lower their income taxes and national insurance bills.
Ms Coles warned savers could be further trapped in the coming months as HMRC aims to balance the books after the pandemic.
“Most of us don’t know how much tax we are paying, so we risk paying too much,” she said.
“And at a time when the government is keen to recover as much money as possible to meet the astonishing costs of the pandemic, if we don’t get our tax bill under control, there is every chance that we will be caught off guard by increases. taxes too.
“It’s hardly surprising that we don’t know exactly how much tax we pay, because the tax system is so unnecessarily complex. However, being completely in the dark about taxation is dangerous because we may not budget for them effectively. tax bills, and we run the risk of paying more than our fair share. “
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Ms Coles went on to explain how the complicated tax system is largely to blame for remaining confused.
“The tax system almost seems to have been designed to bamboozle,” she said.
“Take VAT, for example, essential foods are VAT exempt and luxury goods are subject to VAT, but it’s almost impossible to guess where the line is. So, for example, potato chips are taxed at 20%, but there is no VAT on vegetables. crisps and tortilla chips are also rated zero.
“And even when we think we know how much tax we’re paying, there’s a good chance we’re in the dark. is not the same as knowing how much tax you pay overall, because you face a different rate on every slice of your income. Base rate taxpayers have a marginal rate of 20%, for example, but pay an average of 9.5% income tax on all of their income. “
Fortunately, Ms Cole explained how people can “get acquainted” with the taxes they pay, especially what is taken from income and national insurance.
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Income tax and national insurance
The analysis of what is paid in income will differ between those who are employed and freelancers. Those who are employed can easily find out what they are paying in tax by checking their payslips.
This will allow them to see how much is going into income tax and national insurance. Self-employed workers will be able to retrospectively verify their tax accounts through an income tax return.
However, Ms Coles warned that it may be more difficult to monitor tax costs as they go for self-employed workers and as such siphon off a portion of whatever is earned and put it in a separate account. to cover the cost of taxes would be beneficial.
Regarding the reduction in the tax bill, Ms Coles said: “If you are employed, you can reduce your salary by sacrificing your salary. You and your employer agree to reduce your salary and pay the equivalent in benefits with it. National insurance and tax breaks. It means you save tax and NI on the part of your salary that you sacrificed in exchange for these benefits. “
She highlighted six ways to reduce the amount of taxes they pay by sacrificing their wages.
“The best-known example is the pension, but it also applies to the cost of pension advice provided by your employer, childcare vouchers (now only available to those who already benefit from them), in-company crèches , vehicles with very low emissions, which emit 75 g of CO2 per km or less.
“You can also make charitable donations and if you are a higher rate taxpayer you can claim additional tax relief through a self-assessment.
“If you are self-employed, be sure to claim everything you are entitled to, which will lower your tax bill, including all eligible expenses, pension contributions, and charitable donations.”
Workers will likely want to heed this advice, as recent data from HMRC has highlighted just how expensive taxes are becoming for Britons.
Between April and August 2021, HMRC’s total revenue reached £ 280.4 billion, an increase of £ 84.7 billion from the same period a year earlier.
The same data showed that cash receipts were higher from VAT by £ 46.7 billion.
Cash inflows were higher for income tax, capital gains tax and national insurance contributions (NIC) (£ 25.2 billion), corporate tax (£ 4.3bn), hydrocarbon oils (£ 3bn) and stamp duties (£ 2.6bn).
On October 27, Chancellor of the Exchequer Rishi Sunak will present his next budget and many expect sweeping tax changes to cover the costs of the coronavirus. Predictions have been made that everything from pension tax relief to capital gains tax could be targeted.
Tom Evennett, EY’s head of private client services, warned that a redistribution of wealth “from the few to the many” would be prioritized by the government and that the capital gains tax (CGT) and inheritance tax (IHT) could be “ripe for reform”.
“These goals appear to be attractive targets because the income they currently generate is eclipsed compared to the amounts generated by income tax, national insurance and VAT,” he said.
“Even without change, future tax revenues could be higher, especially given the inflated values of property and assets and the anticipated transfer of significant wealth to younger generations in the years to come.
“Raising overall rates or limiting relief for either of these two taxes may not be popular with traditional grassroots voters in government and many would see rate increases or reduced relief like a courageous step given the responses to the health and social care tax. “
Although no tax plan has yet been announced, Her Majesty’s Treasury has confirmed that the upcoming Budget and Expenditure Review “will set out the plan for how public spending will respond to people’s priorities over the next three years. coming years”.
Express.co.uk has contacted HMRC for comment