By Emma-Lou Montgomery, 15/04/2009 00:00

Exactly how much tax do you pay?

So, how much tax do you pay? I know, it sounds like a silly question. The answer is obviously: 'too much'.

But brace yourself, because while you may already think you pay too much tax, the chances are the real amount you're actually paying is far more than you think.

That's because we tend to focus mostly on income tax. But don't forget VAT, fuel duty, stamp duty, National Insurance, duty built into alcohol and cigarette prices, air travel surcharges, inheritance tax and council tax.

They're all taxes. And these are the ones that can really bump up the total amount of tax that you pay.

Find out if you're due a tax rebate

There's no avoiding it
As that list shows, we pay tax on all sorts of things, many of which are unavoidable to most people.

Take petrol. The 2p a litre rise in fuel duty that began on April 1 means the Treasury now gets about 66p more for every tank of fuel sold. Raising the fuel by another penny would add £500 million to the Treasury's coffers every year. It's a nice little government earner.

Then there's the tax we pay on cigarettes and alcohol. For every penny that's added to the rate on booze, the Treasury rakes in £100 million.

Also, the property market may have stalled of late, but anyone buying a home worth over £500,000 has to pay an additional tax of 4% of the value in stamp duty to the taxman. There are taxes to pay at every corner, or so it seems.

Are we better or worse off now?
The big question is: are we paying more in taxes today than in the past? According to the latest calculations by Which?, on average around 35% of the money we earn goes on tax.

Around 20% is taken by direct taxes such as income tax, National Insurance and council tax. The rest goes on VAT, duty on alcohol and petrol and other indirect taxes. That means that while the typical household earned £32,779 last year, it had only £21,277 left after tax - a £11,500 difference.

But your actual total tax liability could very well be far more than 35%.

While the government claims we're better off than we were, thanks to the above-inflation rise in the personal allowance to £6,475 in the current tax year (from £6,035), the truth is that we're paying more for pretty much everything, so the small rise here doesn't make much of a difference at all.

Take National Insurance as a starting point. Because the upper threshold for NI contributions is now in line with income tax, for higher rate taxpayers any good news on the income tax front is cancelled out by the hike in national insurance.

Are you paying more tax than you need to?

The worst is yet to come
The amount of tax we pay is set to go even higher. All this propping-up of the economy as the chancellor strives to battle though recession is costing us serious money.

And that money is going to have to be repaid. By us. The government dug us into a hole and we're the ones who are going to have to pay our way out of it.

The Institute of Fiscal Studies has already calculated we're looking at a tax liability of £1,250 for every household in the UK. The rich are first on the list, the chancellor having already announced several changes that kick in next April.

The most severe change so far is the halving of the personal allowance for anyone earning more than £100,000. At the same time, anyone earning more than £140,000 will lose their allowance altogether, making their marginal tax allowance a hefty 60%.

But, experts say the government is going to have to tax us all heavily, not just the top earners, to stand any chance of plugging the £40 billion black hole that they've dug for us so far.

What would you like to be in the Budget?

National Insurance is the killer
A favourite of the government is National Insurance as it's not as likely to grab the headlines as a rise in income tax. But a percentage rise in National Insurance, which is tantamount to the same thing, often escapes our notice.

Already set to go up by half a percentage point in 2011, the rise will generate a significant £5 billion a year for the Treasury's coffers.

We can also expect to see VAT increase in the future, and possibly over and above the previous 17.5% level, according to some experts.

Documents released last year revealed the government previously considered increasing VAT to 20%, although such a move isn't expected to happen until the economy has recovered and we're all feeling a little more flush. After all, the Treasury only earns when we spend.

Then there's a potential rise in the top band of stamp duty, from 4% to 5%, on properties that sell for more than £500,000. It may not be an issue now, but stamp duty is a big earner for the Treasury and an added tax burden for buyers once the property market picks up again.

Considering all the taxes we're forced to pay, maybe the recession does have one glimmer of brightness in it.

Because, if you're not buying expensive property or new cars, getting a hefty salary rise and splashing out on living the high life, more of the money you do have stays in your pockets and doesn't find its way into the taxman's coffers.

Then again, perhaps with all these substantial tax hikes inevitable in the future, now could be a better time than any to buy that new car, or whatever you've got your eye on. Because 15% in VAT is easier to stomach than 20%.

Either way you can bet your bottom dollar that we'll feel the pinch even more in years to come.

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