UK markets closed
  • FTSE 100

    +74.63 (+1.29%)
  • FTSE 250

    +215.15 (+1.20%)
  • AIM

    +11.44 (+1.18%)

    -0.0074 (-0.67%)

    -0.0042 (-0.32%)

    +166.02 (+1.68%)
  • CMC Crypto 200

    -1.40 (-0.54%)
  • S&P 500

    +11.90 (+0.34%)
  • DOW

    -28.09 (-0.10%)

    -0.86 (-2.12%)

    -1.20 (-0.06%)
  • NIKKEI 225

    +42.32 (+0.18%)

    +132.65 (+0.54%)
  • DAX

    +102.69 (+0.82%)
  • CAC 40

    +58.26 (+1.20%)

Three ways you could be stealth taxed in 2020

Kalila Sangster
Pound coins and bank notes.
Someone earning £50,000 could end up paying about £1,013 more in tax, according to analysis by experts. Photo: Getty

Stealth tax rises mean you could pay £1,000 more tax in 2020, according to financial service company Hargreaves Lansdown.

Some taxes are going up — including council tax which is increasing by average of £70.

But although the government has promised not to raise key tax rates it doesn’t mean you won’t be paying more.

“When it comes to tax, simply by keeping things the same, the taxman can take more of our cash. So by holding income tax thresholds steady, more people will be pushed over them by pay rises,” said Sarah Coles, personal finance analyst at Hargreaves Lansdown (HL.L).

Typical wage rises of 3.5% would mean that even after paying extra tax, take-home pay should just-about keep up with inflation. But any pay rise above inflation may go straight to the taxman.

In England income tax thresholds are staying fixed. This means wage rises will push more people over the threshold.

READ MORE: Five ways to make doing your tax return easier

In the past year wages have gone up at a rate of 3.5%, and the national living wage will be rising more than 6% in April. This points to another year of wage growth meaning many will be paying more income tax than last year.

For example, someone earning £50,000 in 2019/20 would pay £700 more in income tax in 2020/21 (after a 3.5% pay rise).

Council tax is going up — councils will be able to raise rates by 2%, or 4% if they have responsibility for social care. The average Band D council tax bill in England is £1,750, so a 4% rise would send it up by £70 to £1,820.

VAT could also have an impact on the amount of tax you pay. Althogh the rate of VAT isn’t expected to change next year the government will collect more of it as prices and spending go up. In 2018/19 the VAT rate remained the same, but the total VAT taken went up 5.3% compared with the year before, rising to £132bn.

By looking at past VAT trends Hargreaves Lansdown calculated how much the rise in prices and spending is likely to be. In 2017/18 the average household spent £5,656 on these taxes. Assuming a 5% annual rise, this would go up to £6,548 in 2020/21 — a rise of £312.

READ MORE: Aldi sales reach record £1bn at Christmas

So someone earning £50,000 could end up paying about £1,013 more in tax, according to the analysis by Hargreaves Lansdown.

“We should all do what we can to ensure we’re not paying more than our fair share of tax by taking advantage of key allowances like ISAs and pensions,” Coles said.