MILLIONS of workers will be forced to hand over more of their hard-earned cash to the taxman in the coming years after Rachel Reeves froze tax bands in the Budget.
Around one in four adults will be higher-rate taxpayers by 2031, up from one in seven in 2022, according to the Office for Budget Responsibility.
Income tax thresholds have been frozen until April 2031, which means more people will be pulled into higher tax bands through a concept known as fiscal drag.
The higher rate tax band is frozen at £50,270, which means any money earned over this amount is taxed at 40%.
Meanwhile, the additional tax band is currently fixed at £125,140, beyond which any earnings are taxed at 45%.
But there are things you can do now to stop a surprise tax bill from landing on your doorstep.
Read on to find out how to cut your bill and beat the tax trap.
Team up with your spouse
If you are married or in a civil partnership then you may be able to reduce your tax bill by claiming Marriage Allowance.
Every worker has a Personal Allowance.
This is the amount of money you can earn every financial year before you need to start paying Income Tax.
For the current tax year the Personal Allowance is set at £12,570, so you don’t pay tax if you earn less than this amount.
Marriage Allowance is a special tax rule that lets you transfer £1,260 of your Personal Allowance to your husband, wife or civil partner.
If can reduce your tax bill by up to £252 every tax year and is free to apply for.
To be eligible you need to be married or in a civil partnership.
You need to earn less than £12,570 and your partner must pay Income Tax at the basic rate, which means their income is between £12,571 and £50,270.
The fastest way to apply for the allowance is online and you get an email confirming your application in 24 hours.
How do I check my tax code?
YOU can check your tax code on your personal tax account online, on any payslips or on the HMRC app.
To log in, visit http://www.gov.uk/personal-tax-account.
If you have one, you can also check it on a “Tax Code Notice” letter from HMRC.
Bear in mind that you might need your Government Gateway ID and password to hand to log in.
But if you don’t have this you can use your National Insurance number or postcode and two of the following:
- A valid UK passport
- A UK photocard driving licence issued by the DVLA (or DVA in Northern Ireland)
- A payslip from the last three months or a P60 from your employer for the last tax year
- Details of a tax credit claim if you have made one
- Details from a self assessment tax return (in the last two years) if you made one
- Information held on your credit record if you have one (such as loans, credit cards or mortgages)
For more information visit gov.uk/apply-marriage-allowance.
You can also claim Marriage Allowance by post using the MATCF form.
Claim tax relief
Another way to reduce your tax bill is to claim tax relief.
You can claim the relief on your job expenses, which means you will take home more of your earnings and pay less tax.
To be eligible you need to use your own money for things you need for your job but only use for work.
For example, you can claim for items including working from home expenses, uniforms, work clothes, tools, a vehicle you use for work, travel and overnight costs.
You can’t make a claim if your employer gives you all the money back or alternative equipment.
You will get the relief based on what you have spent and your tax rate.
The exact amount you could get depends on what you are claiming for.
For example, if you claim £60 of tax relief and usually pay tax at 20% then you will get £12 back.
To make a claim visit gov.uk/tax-relief-for-employees.
Save with salary sacrifice
Salary sacrifice is a great way to cut your tax bill and top up your income.
It lets you swap some of your wages for a different benefit from your employer, for example a company car, childcare voucher or pension contribution.
As a result, your salary is reduced by the cost of any benefits you choose.
A lower salary means you will pay less tax and National Insurance.
Salary sacrifice also means that your employer will pay less National Insurance.
Many employers will pass on this saving to you by paying it into your pension, boosting your contributions even more.
But you will need to be quick as the Government announced a major change to salary sacrifice in the Budget.
From April 2029, workers will be forced to pay the full rate of National Insurance on any contributions over £2,000 a year.
For pay of between £242 to £967 a week you pay National Insurance at a rate of 8%.
But the rate falls to 2% once you earn more than £967 a week.
Keep more of your child benefit
If you earn more than £60,000 a year then you may be able to keep more of your child benefit with a clever loophole.
The government pays child benefit to parents or other people who are responsible for bringing up a child.
It is currently worth £26.05 for the eldest or only child and £17.25 for every additional child you have.
To be eligible for the full payment you need to earn less than £60,000 a year.
Once you earn more than this amount then you need to start paying back the benefit at a rate of 1% for every extra £200 you earn.
You lose the payment entirely once you earn more than £80,000 a year.
If your earnings are close to the threshold you can use your pension contributions or salary sacrifice to reduce your taxable income, which would allow you to keep more of your child benefit.
For example, if you earn £61,000 a year then paying £1,000 into your pension would let you hang on to all your Child Benefit.
But the changes announced in the Budget will also impact parents who do this from April 2029.
You can still use your pension to reduce your income but any pension contributions above £2,000 will be subject to National Insurance.
