An average employee is owing over £800 in additional income tax and National Insurance (NI) this year as opposed to what they would have paid under the prior system.
The government did not freeze tax thresholds during 2021.
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The point at which individuals begin paying 20% income tax and 8% National Insurance contributions on their wages has remained at £12,570 since April 2021, just like the £50,270 level where they start facing the elevated 40% income tax rate.
The limits increased annually due to rising inflation, but the pause was introduced by the former Conservative administration.
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Had the freeze not been implemented, the two thresholds would have remained at £15,480 and £62,080.
The choice remains unchanged under the present Labour government even though Rachel Reeves mentioned in the previous Budget that prolonging the freeze “would affect workers negatively.”
The suspension is set to last until 2028, meaning the additional cost you incur will increase annually, particularly if inflation remains elevated.
Reports suggest the freeze might also be prolonged until 2030.
during the forthcoming Autumn Budget, although the Treasury has not yet verified this.
Here, we outline how much additional tax you’re paying due to the freezes, based on your income.
How much additional tax are you paying now due to the freeze?
According to calculations from accounting firm Blick Rothenberg, individuals are currently paying higher amounts of income tax and National Insurance across various salary levels than they would have if these thresholds remained unchanged.
The following tables illustrate the distribution of taxes you currently pay, versus the taxes you would owe if the threshold levels had increased.
All individuals with earnings exceeding £12,570 are subject to higher income taxes compared to what they would have paid otherwise.
Individuals with incomes exceeding £50,270 will pay marginally lower National Insurance contributions. This is because, once you fall into the higher-rate tax bracket, the portion of your earnings taxed at 40% incurs a 2% National Insurance levy, compared to an 8% contribution on income ranging from £12,570 to £50,270.
The following graph illustrates the reduction in your net income due to the salary reductions.
Ways to reduce your tax liability
Methods for lowering your tax payment
Strategies to minimize your tax burden
Techniques to decrease what you owe in taxes
Approaches to lower your tax expenses
Tips for reducing your tax obligation
Options for cutting down on tax costs
Suggestions for minimizing tax payments
Ideas for decreasing your tax amount
Advice on how to lessen your tax responsibility
There are various legal methods available to reduce your annual tax liability.
You have the option to boost your pension payments to receive tax reduction based on your highest income level, participate in salary exchange programs, and make donations to charities.
Additionally, you may want to check if you qualify for the marriage tax allowance and ensure you’re making full use of your ISAs.
More details about everything mentioned above can be found in our article,
Five strategies to reduce your income tax liability amid anticipated gradual increases
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