Tax changes explained: What does it mean for me and my wages? | The Sun

Tax changes explained: What does it mean for me and my wages? | The Sun

November 17, 2022

THOUSANDS of households will pay more income tax following the government's Autumn Statement.

Addressing the House of Commons earlier today, Chancellor Jeremy Hunt said the additional rate of income tax threshold will drop from £150,000 to £125,140 from next April.

That means all those earning £125,140 or more will pay the 45% rate.

So those currently earning between £125,140 and £150,000 will be paying more income tax come next April.

The government also extended a freeze on income tax, National Insurance contributions and Inheritance Tax until April 2028.

The freeze was meant to come to an end in 2026, but the extension will drag millions more into paying a higher tax rate.

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This is because inflation and rising wages will mean workers going over the thresholds for paying higher tax.

But what do changes to the tax system mean for you generally and how does the system work? We explain below.

What is income tax?

Simply put, income tax is a tax you pay on your income, but only once you're earning over a certain amount.

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Anything earned in a year up to £12,570 is known as your personal allowance and you're not taxed on that.

Beyond that you are taxed a certain percentage depending on the amount you've earned.

How do I calculate tax?

If you earn £12,570 or less, you currently pay no income tax.

On earnings between £12,570 and up to £50,270, you pay the basic income tax rate of 20%.

Wages of £50,271 and above are taxed at the higher rate of 40%.

And the additional rate of income tax, which applies to earnings of £150,000 or more, is 45%.

Obviously the higher 45% rate will apply to those earning £125,140 or more from next April.

The thresholds for income tax generally rise each year so that people can earn more without paying more tax.

But the thresholds are frozen until 2028, which could drag millions into higher tax brackets.

What is National Insurance?

National Insurance is a tax on your earnings, which is put into a fund to use for some state benefits.

This includes the state pension, statutory sick pay, maternity leave and unemployment benefits.

If you are a UK national, you should receive an NI number and card automatically before you turn 16.

This number allows the government to track your earnings and apply the right amount of tax.

Who currently pays it?

You pay National Insurance if you’re 16 or over and either:

  • an employee earning above £242 a week
  • self-employed and making a profit of £6,725 or more a year

It is deducted from your wages each month.

If you're employed, you can see your contributions by looking at your pay slip.

Once you reach state pension age, you don't need to pay it at all.

There are different types of National Insurance – known as "classes" -, and the type you pay depends on your employment status and how much you earn, and whether you have any gaps in your National Insurance record.

What are the thresholds and how much do I pay?

The threshold for National Insurance payments is currently £12,570 a year for employed workers and £6,725 for self-employed people.

At the moment, most people pay 12% on anything they earn between £242 and £967 per week. You have to pay 2% on anything you earn over £967 a week.

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Today, the Chancellor also announced:

  • Up to £1,350 in cost of living payments
  • Pension triple lock to stay in £870 boost for seniors
  • Benefits including Universal Credit and pension credit to rise with inflation
  • New work coach requirements for Universal Credit
  • Social housing rents to rise 7%
  • Freeze on income tax and National Insurance thresholds
  • Stamp duty cut to end in 2025
  • Typical energy bills to be capped at £3,000
  • Minimum wage to rise to £10.42 an hour

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