Taxing times as HMRC now strikes at every turn
TAXPAYERS are under siege like never before as allowances are cut or frozen, dragging millions more people into paying extra tax at a time when they’ve got less money in the bank due to the cost-of-living crisis.
As well as handing over more cash to HMRC, people face shock fines for failing to pay tax they didn’t have to worry about a year or two ago.
Even HMRC is struggling to keep up, as it has to tax ever more people, but with no more resources to do so.
Getting through to its helplines is now an act of endurance, with service so bad that HMRC effectively threw in the towel and declared it would shut them down for the summer, until forced to backtrack.
Taxpayers might be a bit more understanding if our public services were getting better, but instead they’re getting worse. Something has to give. Most likely you, to HMRC.
TAKE
HMRC has just posted its highest takings in a single year – £827billion for 2023/24, which is up 5 per cent on the year before.
A combination of high inflation, rising wages and frozen tax thresholds are driving up HMRC receipts, said Joe Neal, tax manager at Blick Rothenberg. “HMRC produced record takings for income tax, National Insurance (NI),VAT and inheritance tax last year.”
Income tax is rising fastest, with takings up 10 per cent in a year, and an incredible 23 per cent over two years.
Chancellor Jeremy Hunt’s decision to cut NI twice this year may ease some of the pressure but inflation has pushed UPVAT receipts to a record £169billion.
Inheritance tax is setting unwelcome records too, with grieving families handing over £7.5billion in a year.
The £325,000 nil-rate band has been frozen since 2009, the £250 small gift allowance since 1991 and the £3,000 exemption since 1981.
With Hunt slashing capital gains tax and dividends allowances for the second time this April, they will also pull in more revenue.
CUT
Everywhere we look – and a lot of places we don’t – the Treasury is taking a cut. If you wondered why your car, home, pet and private medical insurance premiums were rising so sharply, higher claims and labour costs are only part of the story.
You also pay insurance premium tax (IPT) at a hefty standard rate of 12 per cent, double the 6 per cent charged a decade ago.
IPT rises to 20 per cent on travel insurance, electrical appliance and new cars bought from dealerships, with insurance part of the package.
An incredible 84 per cent of households pay IPT, yet two thirds of us know little about it, making it easy for Chancellors to hike.
Mervyn Skeet, director of general insurance policy at the Association of British Insurers, said this penalises people for being responsible. “IPT hits the poorest hardest because they typically spend more on insurance as a proportion of their income.”
Tax doesn’t stop. Every time you fill up at the pumps, you hand over more money to the Treasury. Fuel duty is currently levied at a flat rate of 52.95p per litre for both petrol and diesel. Incredibly,vat of 20 per cent is then charged on both the product price and the duty. So you are paying tax on tax.
Right now, it makes up 62.11 per cent of the purchase price of a litre of unleaded, according to the RAC.
Plus motorists have to pay vehicle exercise duty too.
ENDLESS
If all that wasn’t enough there is stamp duty if we buy a property, duties on alcohol, tobacco and gambling, air passenger duty and of course council tax.
People making flexible pension withdrawals even pay tax they don’t owe to HMRC, and have to claim it back later, said Ian Cook, chartered financial planner at Quilter. “Those needing access to their funds are faced with a system that over-taxes them and leaves them waiting unnecessarily before they can access the full amount they are owed.”
This is due to an oddity within the PAYE system which means they are placed on an emergency tax code when they first withdraw from their pension pot. “Pension tax overpayment refunds remain incredibly high, with £42 million repaid in the first three months of 2024.The average tax refund per saver was £3,167.”
It all adds to the pain, and the feeling that HMRC is out of touch.
‘Income tax is rising fastest, with takings up 10 per cent in a year and 23 per cent over two years’
SAVE
With the nation’s finances under pressure, there is little hope that the tax burden will ease, despite the NI cuts. In fact, they are likely to get worse if Labour wins the election, with new taxes on private school fees and pensions likely, and possibly even a wealth tax.
We need to keep a close eye on all the ways we now pay tax, said Sarah Coles, head of personal finance at Hargreaves Lansdown. “With tax thresholds set to remain frozen until 2028, everybody has to look for ways to reduce their exposure.”
Coles said you could be paying more than necessary, by failing to make use of your allowances.with so many taxes out there, working out what you can save is not easy.which also works in HMRC’S favour.