The Chancellor, Kwasi Kwarteng, introduced sweeping tax reforms in last week’s mini-Budget.
In particular, the base rate of Income Tax will be reduced from 20% to 19% beginning in April 2023, a full year sooner than the date originally indicated by former Chancellor Rishi Sunak.
In addition, those with incomes above £150,000 will no longer be subject to the Additional Rate of Income Tax, which is currently at 45%.
To what extent does this affect you?
You will pay 40% of your income in taxes if it exceeds £50,270 per year. This is the current highest income tax rate.
The changes represent one of the simplest rate systems within the OECD, in addition to rates of 0%, 19%, and 40%.
The reduction will be reflected in the base rate and is associated with:
- The tax rate paid on interest and dividends from savings accounts in the UK
- Any taxpayer whose income is not covered by the main rates or the Scottish rates of Income Tax will have their non-savings and non-dividend income taxed at this default basic rate.
- Earnings in England, Wales, and Northern Ireland that do not come from dividends or savings.
In addition, the government said that in 2023–24, 31 million taxpayers would benefit from a net average increase of £170 due to the reduction in the basic Income Tax rate from 20% to 19%.
The good news for non-profits
Presently, the rate of Income Tax applied to Gift Aid will stay unchanged at 20%. In 2027, however, that figure will fall to 19%.
Over £300 million will be saved thanks to the postponement of the Gift Aid cut, which will help over 70,000 charities.
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