Autumn Statement, Tax Allowances, Tax Rates

Jeremy Hunt Reverses Tax Changes

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In the current political turmoil there were always going to be more changes coming after the mini budget and the sacking of ex-Chancellor Kwasi Kwarteng last week.

With Jeremy Hunt’s appointment as the new Chancellor it seemed imperative to make some changes that settled the financial markets and these came swiftly after his appointment, instead of on 31st October as previously promised.

The main change that affects the information that this website provides is the reversal of the 1% drop in the lower rate of income tax that was due to come into effect in April next year.

The lower rate was due to drop from 20% to 19% for earnings over the personal allowance of £12,570 and below £50,270, but this has now been scrapped and the lower rate will remain at 20% for the foreseeable future.

The scrapping of the higher rate of 45% had already been almost immediately reversed and so that will also now stay the same as before.

The scrapping of the increase in National Insurance payments does remain however so that is one thing left from the mini budget.

We will be keeping a check on any further announcements to see if more tax changes are in store.

National Insurance, Spring Statement, Tax Rates

Taxation Changes in 2022 Spring Statement

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Rishi Sunak has just announced in his spring statement that there will be an increase to the National Insurance threshold with effect from July so that people will now only pay NI on earnings over £12,570. This brings the NI threshold into line with the level at which people start to pay tax.

He has also announced that from 2024 the lower rate of income tax, which now stands at 20%, will be decreased by 1 pence in the pound to 19p.

More to follow on this.

Tax Allowances

Which Tax Allowances Changed for 2021/22?

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Due to the current economic situation the planned changes to some allowances for 2021/22 have not happened or have been slightly revised. So which tax allowances have changed for this year?

Not many allowances have changed this year and those that have changed have only done so by a small amount.

Capital Gains Tax (CGT), Inheritance Tax (IHT), the annual ISA Allowance and the Personal Savings Allowance are examples of some tax allowances that have not changed between 2020/21 and 2021/22.

You can see all of the current rates, including the rates from previous years, on the allowances page here.

The two main tax rates that have changed are the personal allowance and the personal tax rates (although these are intrinsically linked so could be counted as one).

The personal allowance has increased to £12,570 from £12,500 – so only a small increase – and the higher rate tax bracket now starts at £50,270 instead of £50,000.

Some allowances are also set to be frozen until 2026 so that some of the debt that has been built up over the last year can be recouped. Therefore, as people earn more, they may find that they are paying more tax.

It may be a while until we see a sustained increase in tax allowances.

 

Capital Gains Tax, Personal Allowance News, Tax Allowances, UK Budget

Personal Allowance Freeze for 5 Years

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Mr Sunak announced the budget at the houses of parliament

In the budget today (3rd March 2021) the Chancellor of the Exchequer, Rishi Sunak, confirmed the the personal allowance for 2021/22 would increase to £12,570 as had previously been confirmed. 

However, he also confirmed that, in order to start to claw back some of the massive spending that needed to happen in order to finance payments during the coronavirus pandemic, the personal allowance would remain frozen at that level until  April 2026.

The personal allowance is the amount of money that can be earned before tax is paid. Once the level is passed, anyone who earns over £12,570 will need to pay tax at 20% for the amount of earnings between the personal allowance and the higher rate tax bracket.

In addition to this, the 40% tax bracket starting point, which will be increased slightly to £52,270 on 6th April 2021, will also be frozen for 5 years and will not be increased until at least 2026.

This means that as people start to see pay rises over the coming years, they may be pushed into a situation where they pay more tax or move into a higher tax bracket.

This announcement came alongside confirmation that the furlough scheme will be extended as will the SEISS scheme for the self-employed, plus there will be an extra £20 a week for those on Universal Credit and Working Tax Credit for the first 6 months of the 2021/22 tax year.

The stamp duty holiday will also be extended to the end of June with a partial amount also being available until the end of September.

The Capital Gains Tax allowance was also included in the budget and it was confirmed that this would increase to £12,300 for the tax year 2021/22 and then also remain at that level for 5 years until 2026.

Personal Allowance News, Tax Allowances

Personal Allowance 2021/22

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2021 2022 personal allowanceThe government has published the personal allowance for 2021/22 on its website and as such has confirmed that it will increase by the increase in the Consumer Prices Index for September 2020 which stood at 0.5%.

The personal allowance is the amount of money that each person can earn before paying tax on their earnings (assuming you have the standard personal allowance figure). For any earnings in the tax year above this figure, tax at the standard or higher rate needs to be paid.

As the personal allowance for 2020/21 was £12,500 (and had been for 2019/20 as well), the increase brings it up to £12,570 per annum.

This is a very small increase and will mean only a saving of £14 a year for a basic rate tax payer. For higher rate tax payers the saving will be higher depending on their earnings.

Other tax allowances for the different tranches of tax rates have also been increased  by the same CPI rate (0.5%) and you can find these updated figures on the UK tax rates at a glance page.

The new personal allowance will reflect in the standard tax code for employees who do not have any other special tax allowances – giving a tax code of 1257L for the tax year 2021/22.