OVER one million workers could lose more than £3,000 from their pay packets over the next four years due to tax shake-ups rolling out in April.
Brits could be losing more of their hard-earned cash in taxes due to a planned income tax freeze.
Usually income tax bands rise in line with inflation each year, to keep your take-home pay in line with the cost of living.
But chancellor Rishi Sunak confirmed in the Budget, the existing bands would be frozen until 2026.
The personal allowance will be held at £12,570 – this is the amount you can earn before you pay any income tax.
The basic rate tax band kicks in from £12,570 and £50,270 – and you’ll pay 20% of your earnings in income tax between these amounts.
From April, basic rate taxpayers the threshold will be held at £12,570 and £50,270 for higher rate tax payers.
The problem comes if your salary increases but the income rate bands are frozen, as that means you hand over more money to the tax man.
Latest research from the House of Commons Library shows that this could force 1.2million workers who earn near the upper end of the basic income tax band, into a higher tax band.
The higher income tax band sees workers pay 40% tax on earnings above £50,270.
If your wage increases every year but income tax bands stay the same, that means every year your tax bill will edge up and you could be tipped over into the higher rate band.
The Institute of Fiscal Studies has estimated that the tax shake-up will mean £11billion will go into Treasury coffers by the last year of the freeze, in the 2025/26 tax year.
Accountants Blick Rothernberg said the freezing of the personal rate band further compounds the problem.
It estimates it could add £3,012 to workers’ tax bills over the coming years.
It’s figures are based on a £60,000 salary.
That’s at a time when a national insurance contribution tax hike is already set to cost workers hundreds of pounds extra a year.
Shore Financial Planning investment director Ben Yearsley warned that workers should be aware of the changes – or risk being caught out by the shake-up.
He said: “It’s likely that even more workers will find themselves in the higher rate tax band with higher inflation today meaning average salaries go up quicker.
“But the higher rate band was always meant for the highest earners not average workers and too many are being caught by it due to freezing tax free allowances.
“It’s a sneaky stealthy tax rise that means politicians can stick to their pledge of not changing the basic rate of income tax while actually raising more tax.”
These aren’t the only tax hikes facing Brits in 2022.
Thousands of families could see their council tax bills go up according to the BBC – some areas could see their bill go up as much as 9% according to estimates.
National Insurance Contributions are also on the up to cover the spiralling cost of social care for local councils.
This is going up by 1.25% in April – how much the increase affects you depends on how much you earn.
Someone on a £25,000 salary will pay an extra £193 a year in NICs after the hike.
Those earning £50,000 will pay an extra £506 a year, and workers on a £75,000 salary will pay £818 more.
There are ways for keeping your tax under control.
You might want to consider a salary sacrifice scheme.
This is where the government will let you give up a portion of your salary and spend it on certain things free of tax – in some cases, national insurance for example.
It could include pensions, childcare vouchers and bike-to-work schemes.
You don’t pay tax on the portion of your wages that goes towards paying for these schemes, lowering the amount of income tax you pay overall.
Contributing to your pension could be another way of bringing you back below the higher rate tax threshold.
When you pay into your pension, some of the money that would have been paid as tax goes towards your pot – and this reduces the amount of tax you pay.
Make sure to look into marriage allowances if you are a married couple.
As many as 2.4million couples are not claiming for up to £1,220 in tax relief – it lets married couples share their personal tax allowances if one partner earns an income under their personal allowance.
