Research by tax refund experts, RIFT Tax Refunds, has revealed how the average person can reduce their effective rate of tax to as low as 12% in a year just by reclaiming the potential refund owed to them by HMRC.
Last week Rishi Sunak announced he was raising the national insurance contribution threshold meaning the average person will be some £336 better off. He also confirmed he will cut the basic rate of income tax from 20% to 19%, although this isn’t due until 2024.
But if you can’t wait for Rishi, RIFT Tax Refunds have highlighted how the average tax refund due could already reduce your effective rate of tax to as little as 12% per year.
The research by RIFT shows that, based on the average gross UK salary of £31,447, the average person will face an annual tax bill of £6,399 – £3,774 per year in income tax and £2,625 per year in national insurance.
This means their effective rate of tax paid on this income sits at 20% per year.
However, many of us fail to even consider whether or not we are owed a tax refund by HMRC, particularly those of us in full-time employment and paid via PAYE. A tax refund can be owed for a wide range of reasons, but most commonly, those that travel to multiple temporary work locations throughout the year are most likely to qualify as they are owed for the cost of travel and accommodation.
On average, those claiming a tax refund via RIFT receive £929 back per year, meaning that the total sum of tax paid per annum is £5,470, not £6,399, reducing their effective rate of tax to 17% per year.
However, those who have yet to claim a tax refund can legally do so for the last four tax years, with RIFT’s data showing that the average person receives a £2,500 refund when doing so.
This would reduce their annual tax bill from £6,399 to just £3,899, bringing their effective rate of tax down to just 12% – an 8% reduction versus the usual 20% per annum.
CEO of RIFT Tax Refunds, Bradley Post, commented:
“Last week’s Budget unveiled some headline grabbing tax changes with the chancellor reducing both the national insurance threshold and the rate of income tax. Of course, the latter won’t materialise until 2024 and so the average person won’t reap the benefits for another two years which isn’t going to help with the current increase in the cost of living.
However, they may well find that they can already reduce their effective rate of tax substantially if they are owed a tax refund and this is something that many people fail to even consider. Particularly in the current climate with inflation putting a squeeze on our household finances, it could be well worth investigating as you’re eligible to claim for the last four tax years and the refund owed can be well worth it.”
