THE start of the new tax year on April 6 means that various taxes are going up.
But there may be ways of avoiding, or at least limiting, the hike.
Households are already under pressure from soaring energy bills, the increasing cost of living pushed higher by record inflation, and sky-high fuel prices.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “This April, just as we’re reeling from horrendous price rises, the taxman will wade in to deliver another terrible blow.
"The amount of tax we pay almost doubled between 2001/2 and 2019/20. It fell back during the pandemic, but January figures show it bouncing back with a vengeance.
"Unfortunately, this is just the beginning: the new tax year will see taxes soar, as we inch towards the highest tax burden since the 1950s."
National Insurance rises
National Insurance contributions, which are deducted from your salary before you get paid, fund services including healthcare, as well as maternity, sick and bereavement pay, and the state pension.
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Everyone under state pension age earning more than £9,880 will pay 1.25p more in the pound in National Insurance from April.
This means it will rise from 12% to 13.25%, and the extra money will be spent on health and social care.
While that doesn't sound like a lot, it could mean the difference of hundreds of pounds out of your pay packet.
For example, someone earning £30,000 currently pays £2,452 a year in National Insurance, and the rise would increase it by £256.
That means they are paying almost 10% more in National Insurance than previously.
And from 2023, pensioners who are still working will also pay the new 1.25% health and social care levy out of their earnings.
There is some good news: the National Insurance lower earnings limits will increase by 3.1%, from £9,568 to £9,880, in line with September 2021 CPI inflation levels.
This means you will be able to keep more of your money before National Insurance contributions kick in.
Frozen income tax threshold
The personal allowance – how much you can earn before paying tax – has been frozen at £12,570, and the higher rate threshold – the point at which you start paying 40%, has stuck at £50,270.
When the freezing of the tax thresholds was announced, the Office for Budget Responsibility calculated that by the 2025/26 tax year, we’ll be paying £8.2billion more a year in income tax as a result.
However, the higher inflation is, the higher this bill is likely to be.
That's because as prices for good rise, employers will be under pressure to raise salaries to help their staff afford to live.
This will increase the amount of tax we're paying anyway, but if the thresholds don't rise, more people will cross the line to pay the higher rate of tax.
According to Hargreaves Lansdown, calculations in January showed that 1.5 million people will start paying income tax, while 1.2 million will move into a higher tax bracket.
In some cases, the Government will let you give up a portion of your salary, and spend it on certain things free of tax.
This includes pensions, childcare vouchers, bike-to-work schemes, and technology schemes.
This won’t boost your take-home pay, but will cut your tax bill.
You can also get a refund on your income tax payments if you've paid too much.
You could have overpaid if your employer has put you on the wrong tax code.
For example, sometimes new employees are put on emergency tax codes when they change jobs.
This means you'll be charged a higher rate.
You can find out what tax code you're on by checking your payslip.
You can also use the government's online tool to work out how much income tax you should be paying.
If you think you're owed a rebate, you can also apply for this online.
Higher wages mean more tax to pay
The National Living Wage is increasing by 6.6% in April, from £8.91 an hour to £9.50 an hour.
But as your wages increase, so does the amount of tax you pay.
There's no way of avoiding this, but you might notice it on your payslip.
Inflation increases VAT
Higher prices mean we pay more VAT, which is currently set at 20%.
This is having a particular impact on petrol: at the moment, VAT on petrol is around 26p per litre.
This means that the extra VAT alone has added £3.30 to the cost of filling up a 55-litre tank.
Most food, and children's clothing, is exempt from VAT, but otherwise, you can't really avoid paying it as it's already added on to the cost of goods and services.
Council tax is going up
Councils across the country are preparing to increase taxes by up to 5% in April, as they try and balance their budgets in the wake of the coronavirus pandemic.
You can check how much the tax is going up in your area by using the gov.uk search tool to find your local council, and then checking its website.
Then check which council tax band your property falls under to work out how much the increase will cost you.
You'll be sent a council tax bill in April outlining how much you owe.
Residents can choose to make payments over a period of 10 months.
But you can also opt to pay slightly lower instalments over 12 months if you prefer – although you won't benefit from a pause in payments at the end of the year.
You might be able to get your council tax bill reduced, but it depends on your personal circumstances.
Reductions are available households claiming certain benefits, those on low-incomes, and people with caring responsibilities.
The discounts range from 25% to 100%, which would mean you wouldn't have to pay any council tax.
You'll need to contact your local authority for more information and apply for a council tax reduction directly.
Another way to reduce your tax bill is to get your property's band changed.
Thousands of households saved money last financial year by getting their council tax band reduced.
If you're successful, you could get a refund worth several thousands of pounds and hundreds knocked off your annual bill.
Experts estimate that up to 400,000 properties are still in the wrong band – meaning thousands of people are overpaying.
But be warned: if you challenge your band with the council you might not be successful, and you could actually end up paying more if they think you should be in a higher paying band.
Also, millions of Brits will get a £150 council tax refund this year to help households cope with the rising cost of living.
It is being offered to low and middle income families and will help to balance out the impact of rising council tax and energy bills.
Eligible residents will get the payment automatically.
Higher house prices means higher stamp duty
Now the stamp duty holiday is over, homebuyers face large tax bills again.
The last time there was a significant permanent change to stamp duty and its thresholds, apart from for first time buyers and property investors, was back in December 2014 when the average house cost £191,669.
Since then, the average price has risen to £274,712, a 45% increase, dragging lots of people into paying higher rates of tax.
At the moment you pay no stamp duty on homes under £125,000, and 2% on the next £125,000.
For houses worth between £250,000 and £925,000, you'd pay nothing on the first £125,000, 2% on the next £125,000, and then 5% on the remainder.
If you're thinking of moving home, it's worth negotiating a price reduction, as even knocking £5,000 off the price of a £300,000 house would save you £250 in tax.
Also, if you’re saving to buy a first property, are aged 18-39, and have at least a year until you expect to buy, you should consider a Lifetime Isa.
You can save up to £4,000 tax free each year, and the Government will give you a 25% bonus on your contributions.
Other ways to reclaim tax
There are a number of schemes that allow you to reclaim tax, including if you work from home, wear a uniform or are married.
There's still time to get the £500 a year working from home tax relief.
If you've spent any time working from home in the last year, you can reclaim cash.
You can claim up to £125 per year and with the option to backdate claims by up to four years, this means you could claim up to £500 in total.
If you're married, you can also make use of the marriage allowance, which is for married couples where one person earns less than the personal allowance.
The personal allowance is earnings up to £12,570 – meaning you won't be taxed on that portion of your salary.
If you're married or in a civil partnership, you can transfer your unused personal allowance to the higher earner.
Up to £1,260 can be transferred in this financial year, potentially saving you a maximum of £250.
But the higher earner must be a basic rate taxpayer, meaning they can't earn more than £50,270 a year.
You can backdate your claim to include any tax year since April 5, 2017.
Also, some workers can claim back money spent on uniform and other tools needed to do their job.
You could be eligible for the relief if you clean your own work uniform and spend your own money on equipment.
You may be able to claim tax relief on the cost of:
- repairing or replacing small tools you need to do your job (for example, scissors or an electric drill)
- cleaning, repairing or replacing specialist clothing (for example, a uniform or safety boots)
You'll either get the actual amount you've spent, and you'll need to keep receipts for this.
Or you'll get an agreed, fixed amount, known as a flat rate expense or deduction.
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