Lower tax take in the last year looks set to reverse, warns Becky O’Connor.
HMRC has published tax receipts and National Insurance Contributions this morning.
The statistics show a steep decline in tax revenue in the year 2020 to 21, down by £49.1 billion to £584.3 billion.
VAT, Corporation tax, fuel duty, Stamp Duty and Air Passenger Duty receipts were all down, while income tax and NIC receipts rose slightly as wages grew. Inheritance tax receipts were also up very slightly.
Becky O’Connor, Head of Pensions and Savings, interactive investor, said: “We paid less in tax to HMRC in the last 12 months, mainly because VAT receipts fell dramatically, as a result of the payment deferment policy.
“But as the economy revs up, the decline in tax take could quickly reverse. More spending could lead to a rise in VAT receipts. As income tax thresholds are now frozen until 2026, wage growth could push up income tax take further. As the stamp duty holiday comes to an end, revenue from house sales could also leap upwards next year, depending on how homebuyers respond.
“We’ll all need to get clever about using our tax-free allowances for saving and investing over the coming years if we don’t want to pay more tax than necessary.
“The annual pensions allowance of £40,000 or up to your current level of earnings, should play a key role in planning long-term finances tax efficiently. It is the maximum you can pay into a pension each year without paying tax. If you can afford extra contributions, putting more into your pension can be an excellent way to keep your current tax bill down.
“Investing in ISAs up to the £20,000 annual limit can also play a role tax-efficient planning, as gains and income from ISAs are tax-free.”
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