Income tax cuts next year

Written by yasiradnan94
18 November 2022

In last week’s Budget the Chancellor stunned his audience by announcing that both the basic rate of tax and the highest ‘additional’ rate would be reduced from 6 April 2023.

Around 50% of taxpayers only pay tax at the basic rate and they will benefit from that rate being reduced from 20% to 19%. This had been announced by the previous Chancellor but was not going to be introduced until 2024. Moving this a year earlier has been done, we are told, to help with the cost of living crisis.

The income threshold at which taxpayers start to pay tax at 40% and the personal allowance have both been frozen for five years from April 2021 to April 2026. With inflation running at nearly 10% this will reduce the real value of the tax-free personal allowance and drag more people into the higher rate tax bracket.

Higher earning individuals will benefit the most from the Budget as the 45% additional rate of tax that applies on income over £150,000 will be abolished from 6 April 2023. These taxpayers will also be eligible to benefit from the £500 savings allowance for the first time from April 2023. The 40% rate will simply continue to apply to all higher levels of income.

These tax cuts do not apply in Scotland as the Scottish Government sets its own income tax rates on earnings and profits (not savings and dividends) which currently range from 19% to 46%. This may change when the Scottish Budget for 2023-24 is announced later this year. The Welsh Government will also have to decide whether to follow Westminster and apply tax cuts to match those in England from 2023.

In addition to cutting tax on earnings the Chancellor has chosen to cut the tax payable on dividend income by 1.25 percentage points from 6 April 2023. This cut will apply across the whole of the UK.

From 6 April 2023 the rates of income tax in England and Northern Ireland will be:

Earnings bandEarnings and profitsDividends
Basic rate: up to £50,27019%7.5%
Higher rate: above £50,27040%32.5%
Additional rateAbolishedAbolished

IR35: small company exemption

Changes to the company size thresholds from April 2025 will also apply for the purposes of the off-payroll working (OPW) rules. The primary aim of the changes to the company size thresholds was to simplify regulatory requirements and alleviate the administrative...

Making Tax Digital – time to prepare!

In just over a year the first tranche of sole traders and landlords will be required by law to keep digital records to comply with the requirements of Making Tax Digital for Income Tax (MTD IT) From April 2026, taxpayers with qualifying trading and property income of...

Salary vs dividends: NIC changes

With changes to employer’s National Insurance and the Employment Allowance, now is the time for businesses to review the most tax efficient mix of salary and dividends for directors. From 6 April 2025 the secondary Class 1 National Insurance threshold reduces from...

Related Posts

Self Assessment and student loan repayment

Self Assessment and student loan repayment

From April 2026 most benefits in kind (BIKs) will have to be processed through the payroll and included on monthly payslips, with a potential knock-on effect for student loan repayments. The mandatory payrolling of BIKs will be implemented in phases, starting from...

High-income child benefit charge via PAYE

High-income child benefit charge via PAYE

From August 2025 employed taxpayers will no longer be required to complete a self assessment tax return (SATR) to declare and pay the high-income child benefit charge (HICBC). The HICBC is a tax charge paid by the higher earning parent which claws back up to 100% of...

IR35: small company exemption

IR35: small company exemption

Changes to the company size thresholds from April 2025 will also apply for the purposes of the off-payroll working (OPW) rules. The primary aim of the changes to the company size thresholds was to simplify regulatory requirements and alleviate the administrative...

We use contact information you provide to us to contact you about our relevant content, products, and services. You may unsubscribe from these communications at any time. For information, check out our Privacy Policy.