Income tax is a significant source of government revenue, and while no major changes are expected in the Autumn Statement, measures announced previously mean that millions of people will pay more in taxes. Key points include:
Income Tax Thresholds: The income tax personal allowance has been frozen at £12,570 until April 2028, meaning more people will start paying tax as wages rise due to fiscal drag. The freeze also applies to higher tax rate thresholds.
Tax on Various Income Sources: Income tax is applied to earnings from employment and self-employment, some benefits and pensions, rental income, and returns from savings and investments above certain limits. Scotland has different tax rules.
Basic Rate: The basic rate of income tax, 20%, applies to earnings between £12,571 and £50,270 per year.
Higher Rate: The higher rate, 40%, applies to earnings between £50,271 and £125,140. Once you earn over £100,000, you start losing your tax-free personal allowance.
Additional Rate: The additional rate, 45%, applies to earnings above £125,140 per year.
National Insurance (NI): Similar to income tax, NI is deducted from your wages. The thresholds for NI are similar to income tax, with rates of 12% on earnings up to £50,271 and 2% on earnings above that. NI thresholds will also be frozen until April 2028.
Scotland: Scotland has different income tax rates, with five bands ranging from a starter rate of 19% to a top rate of 47%.
Tax Historically: Tax revenue as a proportion of the economy is expected to rise to 37.7% by 2027-28, which would be the highest level ever recorded.
International Comparison: In 2021, the UK's tax revenue as a proportion of the economy was 33.5%, placing it in the middle of the G7 group of major economies. France, Italy, and Germany tax more, while Canada, Japan, and the US tax less.
These changes in income tax thresholds and rates can have a significant impact on individuals' tax liabilities and government revenue.
