Millions warned they will be paying MORE tax by next two years

MILLIONS of workers have been warned that they will be hit with big tax rises in the next two years because of how much they get paid.

Around 2.5million taxpayers will be dragged into the higher income tax bracket, meaning they'll have to pay 40% tax on their earnings.

Income tax takes out a cut of your earnings once they've reached a certain threshold.

But the government has decided to freeze income tax bands – which means workers are effectively taking a pay cut.

The personal allowance has been held at £12,570 – this is the amount you can earn before you pay any income tax.

The basic rate tax band kicks in from £12,570 and £50,270 – and you'll pay 20% of your earnings in income tax between these amounts.

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If you get paid between £50,270 to £150,000, you'll have to pay double this at 40%.

If your salary increases but the income rate bands are frozen, that means you hand over more money to the tax man.

But research by the pensions consultancy Lane Clark & Peacock shows if the thresholds were to increase in line with inflation, only 800,000 of the 2.5 million taxpayers who are forecast to be dragged into the 40% band would still be pushed into the higher bracket.

Instead, one in five workers will be dragged into paying higher rates, according to The Times.

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Millions of workers will be paying higher tax rates because of a combination of fast growing wages and a freeze at the point at which workers start paying higher levels of tax.

National Insurance Contributions went up by 1.25 percentage points last month, costing the average worker hundreds of pounds more a year.

Industry experts have warned Chancellor Rishi Sunak to reverse its decision to freeze income tax brackets.

But he resisted pressure and confirmed in January the government would go ahead with the measures.

It will come as a blow to millions of households whose budgets are being battered by a cost of living crisis.

How to avoid paying too much tax

There are ways for keeping your tax under control.

You might want to consider a salary sacrifice scheme.

This is where the government will let you give up a portion of your salary and spend it on certain things free of tax – in some cases, national insurance for example.

It could include pensions, childcare vouchers and bike-to-work schemes.

You don't pay tax on the portion of your wages that goes towards paying for these schemes, lowering the amount of income tax you pay overall.

Contributing to your pension could be another way of bringing you back below the higher rate tax threshold.

When you pay into your pension, some of the money that would have been paid as tax goes towards your pot – and this reduces the amount of tax you pay.

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Make sure to look into marriage allowances if you are a married couple.

As many as 2.4million couples are not claiming for up to £1,220 in tax relief – it lets married couples share their personal tax allowances if one partner earns an income under their personal allowance.

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