is income tax u-turn a good or a bad thing?

There is a trend lately here. As soon as I post an article – the new UK government changes the rules around the topic I blogged about. It happened twice now as the government has changed the rules around the income tax as soon as I posted a blog on it.

Below I will review the minor tweaks that the government has proposed that will changed compared to my previous post. 

One thing I can’t promise with the current government – that I wouldn’t have to post more articles to cover the same topic as government is trying to understand, what the hell are they trying to achieve currently while they are in charge.

People are currently starting to lack confidence in Liz Truss and Kwasi Kwarteng having a plan. It feels more like they are applying a trial and error method to see which of their policies are worth keeping.

basic income tax bracket

I will start with the positive news. The changes proposed to the Basic Tax bracket will stay.

What this means – from April 2023 the tax collected on your salary between £12,571 and £50,270 will be reduced from 20% currently to 19% next year.

This is good news for all of those on smaller salaries. For every £100 you earn over £12,570 per annum you will be able to take home an extra £1. While this doesn’t feel a lot – this can make a difference in my view.

You can earn up to £377 extra per year which I would guess is not far of what a standard home broadband costs in a given year. This change can pretty much cover that if you are at the higher end of the Basic Tax bracket. 

additional income tax bracket

This is where the biggest change is taking place. The government has previously announced a plan to get rid of Additional Tax Bracket.

Additional Tax is applied to people who earn over £150,000 per annum. After hitting this milestone the tax increases from 40% to 45%.

Previously, government proposed to scrap this all together and keep taxes at 40% for everyone earning over £50,270.

This has received a lot of negative media and a decision that was seen as an extremely unpopular by many. This would basically mean – the rich are getting even richer. This would lead to a gap between the wealthy and poor to become bigger than it currently is.

This decision has now been reversed meaning that the 45% bracket is here to stay… for now.

Above is how the new tax brackets will look like from April 2023. Text in red highlights the changes that were reverted from the previous announcement when the government presented their mini-budget in September 2022.

national insurance reduction

This, once again, will be in the positive news bucket. The reduction to national insurance that is due to kick in as of November 2022 is here to stay.

You will be paying 1.25% less NI as of November 2022 on any balance of the salary that is above £12,570. This was a temporary change that was introduced during the COVID pandemic to partially fund the NHS bills.

summary

The article today was a bit short however was there to give you the latest changes that will impact you. 

I believe that overall this is a positive move as long as tax cut won’t need to be funded by reducing some other vital services.

Any person earning over £12,570 can expect to receive a 2.25% tax reduction as of April with half of this hitting your bank account as early as November 2022.

While taxes are tricky to understand and calculate there are plenty of tools available to help. Your payslip is a great place to start. Also, tax calculators are available online. I would recommend using the one you can find here.

If you are looking to change jobs and want to understand what your new take home salary will look like – the calculator above is great tool that will definitely help.