The 'hidden' taxes costing you a fortune

How much money do you pay in tax? If you had to hazard a guess you'd probably opt for your income tax rate - so either 20% or 40%. However, you'd be way off the mark, because the tax system is far more complicated, and the hidden taxes blighting the UK mean you pay far more than this.

National Insurance

The income tax rate is only part of the story when it comes to taxing your income - because you also pay national insurance. Once you earn £7,956 you will pay 12% of everything you earn in national insurance (until you hit £41,865 after which you pay 2%).

It's a sizeable chunk of cash, which means that the basic rate of tax is really 32% rather than 20%, so it's no wonder that politicians have been criticised for years for lauding the relatively low income tax rates - while quietly taking another 12% through national insurance.

In total the government takes an incredible £105 billion a year in national insurance - which makes it one of the most dramatic hidden taxes in the UK today.

Tax on spending

Income isn't the only thing you are taxed on. Another huge chunk of hidden tax comes when you spend your money. In most cases this is VAT (value added tax) which is charged at a standard rate of 20% on anything the government classes as a luxury. And let's be clear here, there are plenty of items the government seems to think are unnecessary luxuries that many people would consider essentials - such as crisps, cereal bars, chocolate-coated biscuits, and fruit squash

The government collects another £102 billion a year from VAT.

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And while these are the biggest extra taxes hitting the average household, they are far from the only ones. The top five of the rest by value are:

1. Fuel Duties

These raise an incredible £27.3 billion a year. Calculated per litre, roughly 60% of the cost of the petrol or diesel you put in the tank is made up by the cost of tax (including the duty plus the VAT). It starts to make George Osborne's brave statements on the freezing of fuel duty start to seem empty and meaningless.

2. Alcohol duties

Despite the government backing down on minimum alcohol pricing, and Osborne offering crowd-pleasing reductions on the price of a pint of beer, this still brings in £10.6 billion a year for the government. On an average bottle of wine this equates to around £2.05, while for a pint of beer it's 43p. You have to add the VAT on top of that, so if you were to spend £5 on a bottle of wine, the government would be getting £3.05 of that.
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3. Tobacco duties

These bring in £9.8 billion a year. On a typical pack of 20 cigarettes the total tax burden of £6.17 accounts for 77% of the typical price of £7.98. On cheaper brands the total tax can be up to 88% of the cash you are paying for your cigarettes.

4. Stamp duty

This makes the government £6.4 billion a year, and is derided as an incredibly unfair tax, which is stifling the property market. At the moment you pay nothing if you buy a property worth up to £125,000, 1% on properties worth more than this but less than £250,000, 3% on those priced between this and £500,000. 4% on those worth more than £500,000 and less than £1 million, 5% on those worth between £1 million and £2 million and 7% on those worth more than £2 million. It makes moving house unaffordable for thousands of people who are desperate to move, but cannot afford to hand over tens of thousands of pounds to the government for the privilege.

5. Car tax

This nets the government £5.9 billion a year. There is a way to reduce the amount of tax you pay - because the less emissions your car produces, the cheaper your tax is. However, if you've got a large family, or a bulky hobby, downsizing into a mini isn't going to be terribly practical.

These taxes irritate us all, but what is perhaps most unfair is the fact that they hit poorer people harder. The poorest 20% of households in Britain spend an average of £1,286 per year on 'sin taxes', including betting taxes, vehicle excise duty, air passenger duty, 'green taxes' and duty on tobacco, alcohol and motor fuels: that's around 11% of their income. If someone in one of these houses was to smoke, they would spend 17% of their income on tax on cigarettes.

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