Impact of stealth taxes laid bare

When referring to personal taxes, we are referring to income tax, Class 1 (employee), Class 2 and Class 4 National Insurance contributions (NICs), capital gains tax (CGT) and inheritance tax (IHT). Whilst individuals will also pay tax in different ways, such as VAT and stamp duty land tax, it is not possible to determine from the statistics how much is paid individually and how much is paid by businesses. 

HMRC’s monthly tax receipts statistics show the total amount paid in personal taxes to the Treasury in the financial year to March 2024 is a record £361bn. That surpasses the previous record for the year before by nearly £20bn and represents a 5.8% increase. 

The figures will make for uncomfortable reading for the chancellor in an election year. In the four tax years since the last election, the personal tax burden has increased substantially by £93bn from £268bn in the year to 31 March 2020.

If we look at these tax increases in the context of UK households, the latest statistics show there are 28.2 million households in the UK. This suggests that the average household has paid a little over £700 more in the financial year to 31 March 2024 than the same period last year.  

It is not surprising that the amount of Class 1 employees NICs decreased by almost 6.8% when compared to the previous year, given that the main rate was reduced from 12% to 10% on 6 January 2024. However, the decrease was more than offset by rising income tax receipts, which increased by a little more than 10% when compared to the previous year. The substantial increase in income tax receipts has two explanations, firstly being due to the frozen tax allowances and thresholds and secondly showing the impact of the additional rate income tax threshold being reduced to £125,140 from 6 April 2023.   

Whilst 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 as a result.