It was hard to miss Chancellor Jeremy Hunt’s Autumn Statement earlier this month, in which he outlined his plan to re-establish the UK’s financial credibility. In the statement, Hunt announced a number of measures which are expected to save billions of pounds for the UK, hopefully pulling the nation out of the ‘fiscal black hole’ it currently faces.
Part of Hunt’s statement focussed on clarifying the income tax rates for the foreseeable future, the allowances for these tax rates, and the dividend rates. In this week’s Tax Tuesday we’ll be discussing everything you need to know about income tax since the Autumn Statement and what any changes could mean for you.
The government had previously announced a cut to the basic rate of income tax, from 20% to 19%, effective from April 2024. It was then decided that this cut would be brought forward to April 2023. However, Hunt announced that in order to help reach economic stability, this cut will only take place when economic conditions allow, and a change is affordable. Therefore, the basic rate of income tax will remain at 20% indefinitely, despite previous decisions.
In the September Mini Budget, Kwasi Kwarteng had announced a plan to abolish the 45% additional rate of income tax, which he then U-turned in October. Hunt then went on to announce that from the 6th of April, the point at which people will pay the additional rate of income tax will be lowered from £150,000 to £125,140. This change is reported to pull 250,000 people into the top rate.
The now Prime Minister, Rishi Sunak, had previously announced a four-year freeze (beginning April 2022) on personal tax thresholds in the 2021 Spring Budget back when he was Chancellor. Hunt decided to maintain this freeze for an additional two years, until April 2028, meaning that until then, the income tax personal allowance and higher rate threshold will remain at £12,570 and £50,270 respectively.
Changes to the Dividend Allowance were also announced, with the government reducing it from £2,000 to £1,000 from April 2023 and to £500 from April 2024. Alongside this, it was also confirmed that dividend tax rates will remain as follows from April 2023:
- The dividend ordinary rate – 8.75%
- The dividend upper rate – 33.75%
- The dividend additional rate – 39.35%.
After a turbulent year of promises to abolish the additional rate of income tax, a U-turn, and now reducing the threshold at which people are required to pay it, we understand how confusing it is trying to comprehend where you stand tax-wise.
How can we help?
If you would like further advice about how the changes to income tax will impact your business, contact our team at tax@haroldsharp.co.uk or call 0161 905 1616.