Income Tax Bill for UK Taxpayers Doubles in Two Decades
UK income tax
UK income tax is a tax levied directly on personal income. It’s something the majority of us are familiar with and is a normal part of working life. But did you know that annual income tax paid by the public has doubled over the past two decades? According to data from HM Revenue & Customs, the annual tax paid by citizens has doubled in 20 years. Double taxation has occurred since the millennium, so let’s take a closer look at the figures.
Income Tax Now Vs Income Tax Then
It has been revealed that during the 1999-2000 tax year, £93 billion was paid as income tax. By 2018-19 (the latest year in which the numbers are available), this had risen to £187 billion, which by anyone’s standards is a significant jump.
And it doesn’t seem like the rise in income tax will settle down anytime soon. In fact, HMRC predicts that the last figure of £187 billion will increase to £199 billion between 2021-2022. So why is the income tax bill for UK taxpayers increasing so rapidly?
Reasons for Income Tax Doubling
Research shows that more people have been drawn into the tax system over the 20-year period. While there were 27.2m taxpayers in 1999-2999, this had risen to 32.6m in 2018-19. The number of taxpayers is set to rise further, encompassing 32.2m people in 2021-22, driven by growth in population and employment, as well as the government’s recent freezing of income tax thresholds.
The Office for Budget Responsibility also says that a further 1m will be pushed into higher rate taxation over the next five years as a result of the 2021 budget. It was announced that from 6 April 2021, people will be able to earn up to £12,570 tax-free with the 20% rate being charged on everything they earn above that amount. Workers will pay the higher 40% rate on income above £50,270. Chancellor Rishi Sunak said that these thresholds, along with the inheritance tax and the pension lifetime allowance, would remain frozen until 2026.
As wages rise, more people will find they have to either start paying income tax for the first time or that they have unwittingly become a higher rate taxpayer in a process known as fiscal drag. It’s estimated that an extra 3% of all adults will have to pay income tax by 2026 as a result of the freeze with the proportion of higher rate taxpayers to rise from 8.7% to 11% of all adults by 2026.
Importance of Accountancy
A professional accountancy and taxation service will ensure you don’t pay any more income tax than you have to, so it’s worth seeking advice – especially if you’re self-employed. Get your accounts in order and enjoy hassle-free management of your finances.