Stealth tax hikes: household bills soar despite NI cut

Tax experts reveal UK households have paid an extra £700 in tax – despite National Insurance cuts.

Many households have paid an extra £700 in taxes over the past year – despite cuts to National Insurance, according to an analysis of official HMRC figures.

Tax specialists RSM calculated that personal taxes paid to the Treasury rose £20 billion to a record £361 billion in the year to March 2024.

And they claim a hike in stealth taxes was enough to offset the reduction in Class 1 employees' NICs that came into force in January 2024.

Chris Etherington and Matthew Todd, who carried out the research, believe the figures will make uncomfortable reading for the chancellor in an election year.

“While taxpayers might feel a temporary benefit from the recent National Insurance cuts, many will feel the effects of a stealth tax hangover for a much longer period and lighter bank balances,” they wrote.

Rising tax burden 

The personal tax burden, which includes Income Tax, Capital Gains Tax, PAYE and Inheritance Tax, has been rising consistently, according to the RSM’s analysts.

“In the four tax years since the last election, the personal tax burden has increased substantially by £93 billion from £268 billion in the year to 31 March 2020,” they added.

Their analysis attributed the rise in income tax receipts to frozen tax allowances and thresholds, as well as the additional rate income tax threshold being reduced in April 2023.

With 38.2 million UK households sharing the record overall personal tax take, it suggests each one has paid around £700 more than in the previous year.

Ruthlessly efficient 

According to Alice Guy, head of pensions and savings at Interactive Investor, frozen thresholds are a “silent and ruthlessly efficient” way to raise the tax burden over time.

“They mean we pay tax on more and more of our income as our wages rise with inflation,” she said. “The policy is less obvious than raising tax rates, but potentially has an even bigger impact over time.”

However, she pointed out that one of the best ways to minimise your tax bill is to increase payments into your pension.

“Pension payments receive tax relief, meaning you can claw back any income tax paid on your contributions as the taxman will pay tax relief straight into your pension,” she said.

“This means it only costs £80 to pay £100 into your pension and £60 to pay in £100 for higher-rate taxpayers.”

Pensioners won’t benefit 

According to Sarah Coles, head of personal finance at Hargreaves Lansdown, many older people are feeling an even heavier tax burden.

“As the Government chose to cut NI rather than income tax, the benefits were focused specifically on people below state pension age,” she pointed out.

This means any pensioner who pays tax will be suffering the impact of the tax thresholds being frozen – but without benefiting from the NI cuts.

“It’s worth considering how to tackle your tax bill yourself, whether that’s through things like pensions and ISAs, or sharing assets with a spouse so you can both take advantage of your allowances,” she added.