Stay Ahead of the Game: Unveiling the Latest Tax Allowance Updates for 2023/24
The new tax year brings with it a few changes to the rules. I have compiled a list of the most notable laws, along with explanations of how they affect you.
Income Tax
Income tax is a tax on your income, and it is the primary source of revenue for the government. The money earned through income tax can then be used to fund public services, such as education and defence spending.
In the UK, everyone has a personal allowance of £12,570. This means you won’t be taxed on the first £12,570 of your annual income. After this, your rate of income tax depends on your total earnings and where you live.
There are three rates of tax. The basic rate applies to earnings between £12,571 and £50,270 and is set at 20%.
In addition to the basic rate, there are two other rates of tax in England: the higher rate and the additional rate. The higher rate applies to earnings between £50,271 and £150,000; once your earnings go over £150,000, you will be subject to the additional rate.
It's worth noting that these rates apply to your taxable income, which is your total income minus any allowances or deductions that you're entitled to claim. Also, tax rates and allowances can change from year to year so it's important to stay up-to-date with the latest information.
What updates have been made to the income tax system for the current year?
In the Autumn Budget, Chancellor Jeremy Hunt announced that the threshold at which earners start paying the additional rate of income tax will be lowered from £150,000 to £125,140.
In England, the additional tax rate for income will remain at 45%, but in Scotland it will increase from 46% to 47%.
National Insurance contributions
National Insurance contributions are another source of income for the Government. These payments fund state benefits, like funding for the NHS and pensions.
National Insurance contributions are typically paid by employees, employers and the self-employed. Unlike income tax, they do not apply to pensions or interest earned through savings.
You stop paying National insurance contributions once you reach the state pension age.
How is the National Insurance contribution calculated?
As a worker, you must start paying National Insurance contributions if your gross earnings exceed £242 per week. This corresponds to £12,584 per year.
Earnings between £242 and £967 a week are charged at 12%. Earnings above £50,284 are subject to 2% tax.
Self-employed individuals pay National Insurance contributions based on their income. They may also make voluntary payments to receive certain benefits, including the state pension.
Council tax
The amount of council tax you pay is determined by your local council, most people will see an increase in this tax this year. 84 out of 114 councils have announced that they will raise council tax by 4.99%.
Pension reforms
The government has announced that State Pensions will go up by 10.1% this year. This means that new single-tier pensioners will now receive £203.85 a week and basic state pensioners £156.20 a week.
Pension contributions
In his Spring Budget, Chancellor Jeremy Hunt outlined a plan to encourage retirees to re-join the workforce. In the same speech, he announced that he was abolishing the Lifetime Allowance--a cap at which you could add to your pension before receiving an excess tax charge.
To support pension saving, the Annual Allowance has been raised to £60,000. This is the maximum amount you can add to your pension each year before incurring an excess tax charge.
Minimum wage rises
The national living wage increased by 9.7% this year and now stands at £10.42 per hour. The increase represents the largest cash increase ever to the national living wage, according to the Government.
Capital Gains Tax
The government has reduced the tax-free allowance for dividends to £1,000. This means you don't pay tax on the first £1,000 earned through dividends.
