The revelation of the staggering amount of tax money collected by HMRC, £938.8 billion in the 2025/2026 tax year, should serve as a wake-up call for anyone looking to control their own finances.
With Income Tax and National Insurance Contributions (NICs) forming over half the amount of total tax taken, it is clear that individuals are most exposed to tax bills compared to businesses, which can often be more effective in how finances are structured.
There are steps that a person can take to be more efficient with their finances and this can help them reduce their long-term tax liabilities.
Why do individuals pay so much tax?
There are a few factors that leave individuals more exposed to tax.
The Personal Allowance and Higher Rate Income Tax thresholds have been frozen in England, Wales and Northern Ireland since 2021, with the Additional Rate threshold last changing in 2023.
Since these thresholds were set, economic realities and rising inflation have caused the on-paper value of income, savings and assets to increase even as their real-world value has not.
Fiscal drag then sets in, seeing more people exposed to higher tax bills even as they do not reap the rewards that such obligations would historically be paired with.
Scotland has a different way of taxing income, with six thresholds in use, though higher earners there may pay even more in tax than their counterparts across the rest of the UK.
A telling factor in this is that even those earning the least in society are paying more tax than before.
Given the recent increase to the National Living Wage, a full-time worker on the lowest legally permissible pay may now find over half their annual salary exposed to Income Tax for the first time.
With rising exposure, more individuals are finding that a deeper understanding of saving strategies and tax knowledge is important in keeping bills down.
How can an individual lower their tax exposure?
It primarily depends on which tax exposure an individual is trying to reduce, but seeking professional financial help is a good starting place regardless.
For Income Tax, it may be necessary for higher earners to discuss earning strategies with employers to find an optimal outcome.
Salary sacrifice schemes can be an effective way of reducing both Income Tax and NICs, with pensions being a popular focus for the additional funds.
Even this is due to be restricted in April 2029, but there is still plenty of time to build up a pension through this method until then.
It is worth noting that unspent pensions will be under Inheritance Tax calculations from April 2027, potentially resulting in pension salary sacrifice schemes ultimately achieving a shifting of tax rather than a reduction.
Some taxpayers are also considering moving to a country with more favourable tax conditions, but this would need careful management to be successful.
Our team can help you explore the range of options that will help you the most.
Each individual has their own tax exposures, so targeted support is vital for keeping tax bills low.
Some tax burden is inevitable, but that does not mean you need to resign yourself to paying more tax than is necessary.
Get in touch with our team to better understand and manage your tax position.
