What were the Income Tax and NIC changes announced in the mini-budget?
· Posted on: September 27th 2022 · read
Update: The Chancellor has made a dramatic U-turn on the abolition of the additional rate band for income tax purposes, which he had previously announced in the Mini-Budget. You can find out more about this announcement here.
The new Chancellor, Kwasi Kwarteng, announced sweeping changes to income tax and National Insurance during his ‘mini-Budget’ on Friday.
The rate of basic rate income tax will drop from 20% to 19% on 6 April 2023, one year earlier than previously announced by the previous Chancellor. This will save an employee with a salary of £50,270 (which is the point at which the higher tax rate starts to apply) and above, £377 per annum in income tax.
The additional rate of income tax will be abolished on 6 April 2023. This currently applies to income over and above £150,000 and is currently 45% for employment income, rental income, and savings income. So, an employee on a salary of £200,000 will save £2,877 per annum in income tax under both measures.
Similarly, the additional tax rate for dividend income will reduce from a current rate of 39.35% to 32.5%.
In addition to the reduction in the additional rate for dividend income, the rates for basic rate and higher rate on dividend income will reduce from 8.75% to 7.5% and from 33.75% to 32.5% respectively. The rates had increased by 1.25% on 6 April 2022.
Therefore, owner managed business owners should review their strategy for drawing income from their business during the current tax year to see whether they can benefit from these reductions which come into effect on 6 April 2023.
The 1.25% increase in National Insurance Contributions, which was brought in earlier this year has also been reversed effective from 6 November 2022.
However, with the increase in interest rates already announced by the Bank of England, and the expectation that further rate rises will be required in the near future to curb inflation, those individuals with variable mortgages, or with a fixed term product coming to an end or looking to move house will see an increase in mortgage costs, which could easily outweigh any income tax and national insurance savings.
