Measure
The Chancellor has confirmed that numerous personal tax thresholds will remain frozen until April 2028, instead of until April 2026.
In the March 2021 Budget it was announced that the income tax Personal Allowance (“PA”) and higher rate threshold (“HRT”), together with the National Insurance contributions (“NICs”) Upper Earnings Limit (“UEL”) and Upper Profits Limit (“UPL”) were to be frozen until April 2026. Previously, they had usually risen in line with the Consumer Prices Index. The Chancellor announced today that these thresholds will remain frozen for a further two years. These measures are forecast to raise over £1.2 billion by April 2028.
Currently the PA is £12,570 and the HRT is £50,270.
From July 2022, the NICs primary threshold (PT) and Lower Profits Limit (LPL) were increased to align with the PA and will now be maintained at this level from April 2023 until April 2028. The Class 2 Lower Profits Threshold (LPT) will also be fixed from April 2023 until April 2028 to align with the LPL. The UEL and UPL will remain at £50,270 in line with the HRT.
In the Autumn Statement 2022 the Chancellor also announced a reduction to the additional rate threshold from £150,000 to £125,140.
All individual taxpayers.
Changes to the personal allowance and NIC limits apply to the whole of the UK. The other measures announced in respect of rates and thresholds apply to all taxable income received by English, Welsh and Northern Irish taxpayers and to savings and dividend income received by Scottish taxpayers. Non-savings, non-dividend income is subject to rates of income tax set by the Scottish Government and so the Autumn Statement 2022 announcements do not affect Scottish taxpayers in this regard.
The freezing of thresholds is already in place and will be extended until April 2028. The lower threshold for the income tax additional rate will be effective from April 2023.
The government has not raised the rates of income tax or NICs, in line with the Conservative Party’s manifesto pledge. However, freezing the personal tax thresholds for a further period until the 2027/28 tax year during a period of high inflation is expected to raise over £1.2 billion. This figure does not take account of the amount the Exchequer has already raised by freezing these thresholds and allowances until April 2026.
Although income tax rates and thresholds may appear to be flat for those earning less than £125,140, they are likely to be suffering more tax than would otherwise be the case due to the ‘fiscal drag’ impact of not increasing thresholds in line with general inflation.