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New taxpayer records for higher rate and additional rate tax

Late June is usually the time of year when HMRC
issues its annual taxpayer statistics, releasing the most up-to-date numbers and projections for the current tax year.

The new data from HMRC now reveals that there are more than 6 million people paying higher rate tax or additional rate tax in the UK – more than ever before.

So, what are the reasons behind this record-breaking increase in higher-band taxpayers, and what does this mean for your personal finances?

Record numbers of higher rate and additional rate taxpayers in 2022

The latest data on UK taxpayers has received more attention than this type of release usually would for a few reasons. Here is a summary of the important points:

⦿ Firstly, the number of people paying income tax
jumped by 4% (1.3 million) for the 2022-2023 tax year, which is the biggest increase in 18 years (since 2004-2005).

⦿ Secondly, the number of higher rate taxpayers
saw an even larger increase of 16% (750,000), which is the highest increase ever in more than 30 years of HMRC collecting UK tax data.

⦿ Thirdly, the number of additional rate taxpayers grew by 12% (66,000), up to 1.75% of all taxpayers compared to the 0.75% when this tax rate was first introduced in 2010-2011.

When you add together all the higher rate taxpayers
and additional rate taxpayers in the UK, it totals over 6.1 million people. This means that more than 1 in 6 income tax payers are paying more than the basic income tax rate (20%) on their annual earnings.

These increases are partially a result of tax rate
and tax allowance freezes, plus the skyrocketing inflation rates
in the UK. The thresholds for the Personal Allowance, higher rate income tax, and additional rate income tax were frozen last year and will remain the same until 2025-2026.

Meanwhile, inflation rates are rapidly outpacing official predictions, pushing up the cost of living and causing workers to seek pay rises in order to keep up with the prices of necessities. If you’re one of the many people pushed into a higher tax band this year, you’re probably wondering what you can do to ease the effect on your personal finances.

Are you making the most of higher rate tax relief?

We’ve already reported on the rising number of higher rate taxpayers, with predictions suggesting that around 1 in 5 (19%)
of taxpayers likely to become part of the higher rate or additional rate tax bands by the 2024-2025 tax year, and looked at some recommendations for higher rate tax relief.

However, here’s another rundown on what you can do to help ease your income tax liabilities, and help yourself in the future. The following tax perks can benefit all kinds of working, retired, low-income, and middle-income families and individuals, so you shouldn’t overlook them.

⦿ Tax-free Childcare – if you are in employment and pay for childcare, you could receive up to £2,000 a year per child
to help with the costs of approved childcare services.

⦿ Marriage Allowance – partners in a married couple can share their tax-free Personal Allowance (£12,570) if one partner transfers £1,260
of their allowance to the other.

⦿ Pension Credit – people over State Pension
age who are on a low income could receive a top-up, bringing weekly income to £182.60 or £278.70
(for single individuals or joint partners respectively).

⦿ Cost of Living Payment – recipients of certain low-income benefits are eligible for a tax-free, non-repayable payment of £650 (in two lump sums of £326 and £324).

⦿ Pension Tax Relief – most people automatically receive ‘relief at source’ on private pension contributions, but if you don’t, you could claim additional pension tax relief through a Self-Assessment Tax Return (depending on your earnings and income tax band).

Looking for professional higher rate tax advice?

While the Treasury seems to be winning with increased tax revenue, it’s not the best news for people already being hit hard by the UK’s cost of living crisis. There’s even talk of new tax cuts being introduced through the Autumn Budget 2022, if not sooner.

In the meantime, anyone who has become a higher rate taxpayer or been pushed into the even higher additional rate tax band
this year should be doing as much as possible to maximise the income tax reliefs available to them.

If you’re struggling to stay on top of your taxes and balance your finances, you could benefit from the services of a professional tax consultant. With advice from trained accountants like our team at GBAC, you could get help accessing all the tax reliefs you’re entitled to.