Income tax is levied on many forms of income and how much a person pays depends on how much they earn throughout a year. While income tax is not levied on all types of income, it is charged on many forms people receive such as money earned through employment, most pensions and certain state benefits.
“By 2021/22 it will still be below its 2018/19 level, but it’ll soon be back over it again.
“And while we’re happy to pay our fair share of tax, we can’t afford to pay over-the-odds. So it’s worth considering some simple steps to protect your income from tax.”
Ms Coles went on to break down how people can manage and reduce their income tax costs: “ISAs can protect income from investments from tax. If you’re saving to buy a first property and are aged 18-39, you should also consider a Lifetime ISA, because in addition to tax free growth, you get a 25 percent bonus on contributions.
“Contributions to pensions, meanwhile, attract tax relief at your highest marginal rate, and the first 25 percent taken from the pension is usually tax-free.
“There’s tax relief on pensions even for non-taxpayers – on the first £3,600 a year.
“In some cases, the Government will let you give up a portion of your salary, and spend it on certain things free of tax (and in some cases national insurance).
“This includes pensions, childcare vouchers, bike-to-work schemes, and technology schemes.
“And you can take advantage of the spouse exemption that means assets that produce an income can be passed between spouses without triggering a tax bill. They can therefore be shared between a couple, so that both take advantage of their allowances. The balance can be held by the spouse paying the lower rate of tax, to reduce the tax payable.”
For those unsure of what they may owe, the Government has a tool on its website which allows people to estimate their bills for the current tax year.
This tool allows people to estimate how much they’ll owe between April 6 2021 and April 5 2022 and on top of this, it will allow people to factor in deductions such as pension contributions and student loans.
For the self-employed, there is also a self-employed “ready reckoner” tool which can help freelancers budget for their tax bill.
Additionally, impartial guidance on income tax can be sought from the likes of Citizens Advice and the Money Advice Service.