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National Insurance and Income Tax Changes 2024

Published by Chirag
Published Date: December 28, 2023

In a recent announcement during the Autumn Statement, Chancellor Jeremy Hunt revealed a significant cut in National Insurance (NI) for approximately 29 million workers. While this news may bring relief to many, it's essential to understand the broader context of previous NI and income tax changes, as the overall tax burden for millions is expected to reach record levels.

What is National Insurance?

National Insurance (NI) stands as the second-largest revenue source for the government, applying universally across the UK. Similar to income tax for employees, a fixed percentage of earnings is deducted from wages, with employers also contributing to NI contributions (NICs). Eligibility for certain benefits, including the state pension, is contingent on the amount of NICs contributed.

Income Tax Changes

National Insurance Changes

Commencing January 6, 2024, 27 million workers will experience a reduction from the current 12% to 10% on earnings between £12,571 and £50,270. Chancellor Hunt estimates that this cut translates to a £450 annual saving for a worker earning £35,400.

For the UK's two million self-employed individuals, changes are also on the horizon. Starting April 6, 2024, they will see a decrease from 9% to 8% on profits between £12,571 and £50,270. Simultaneously, the separate category of National Insurance, Class 2 contributions, will no longer apply. The government asserts that this cut will save an average self-employed person £350 annually.

National Insurance Thresholds

As earnings rise, more individuals will be subject to National Insurance (NI) payments due to a frozen income threshold (£12,570). Formerly, these thresholds increased annually in line with inflation, but Chancellor Hunt has confirmed their freeze until April 2028.

Income Tax Implications

Similar to NI, Income tax thresholds are also frozen until 2028, leading to an increase in the number of taxpayers. This freeze, coupled with higher inflation, is anticipated to elevate the overall tax burden to its highest level since the post-war era, according to the Office for Budget Responsibility (OBR).

Income Tax Changes

Current Rates of Income Tax

The basic rate of income tax (20%) applies to earnings between £12,571 and £50,270. The higher rate (40%) is levied on earnings between £50,271 and £125,140, with an additional rate (45%) for income exceeding £125,140.

Tax Rate

2022/23

Tax Band Threshold

2023/24

Tax Band Threshold

2024/25

Tax Band Threshold

Personal Allowance

£0-£12,570

£0-£12,570

£0-£12,570

Basic Rate Income Tax

£12,571-£50,270

20%

£12,571-£50,270

20%

£12,571-£50,270

20%

Higher Rate Income Tax

£50,271-£150,000

40%

£50,271-£125,140

40%

£50,271-£125,140

40%

Additional Rate Income Tax

£150,000 upwards

45%

£125,140 upwards

45%

£125,140 upwards

45%

Scottish Variations

In Scotland, income tax rates differ due to devolved powers. Notably, a new 45% rate for those earning between £75,000 and £125,140 was announced by the Scottish government. These changes take effect in April 2024.

Tax Rate

2022/23

Tax Band Threshold

2023/24

Tax Band Threshold

2024/25

Tax Band Threshold

Personal Allowance

£0-£12,570

£0-£12,570

£0-£12,570

Starter Rate

£12,571-£14,732

19% Tax

£12,571-£14,732

19% Tax

£12,571-£14,876

19% Tax

Basic Rate

£14,733-£25,688

20% Tax

£14,733-£25,688

20% Tax

£14,732-£26,561

20% Tax

Intermediate Rate

£25,689-£43,662

21% Tax

£25,689-£43,662

21% Tax

£26,562-£43,662

21% Tax

Higher Rate

£43,663-£150,000

41% Tax

£43,663-£125,140

42% Tax

£43,663-£75,000

42% Tax

Advanced Rate

-

Not In Use

-

Not In Use

£75,001-£125,140

45% Tax

Top Rate

Over £150,000

46% Tax

Over £125,140

47% Tax

Over £125,140

48% Tax

Tax and the UK Economy

Despite these alterations, the tax-to-GDP ratio is projected to rise, reaching 38% of GDP in the next five years – a post-war high, as per the OBR. While the UK stands in the middle of the G7 in terms of tax raised as a proportion of the economy (33.5% in 2021), the shifts in tax policies are likely to impact households across the spectrum.

National Insurance

As the landscape of taxation evolves, understanding these changes becomes crucial for individuals navigating the intricacies of their financial obligations. The implications of these adjustments extend beyond individual paychecks, shaping the economic landscape and influencing the fiscal well-being of households across the UK.

Chirag
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