From April 2023, the basic income will be tax will be reduced from 20p to 19p, for employees in England, Wales and Northern Ireland.
The government will also abolish the extra rate of 45p for persons earning more than £150,000.
But what is? income tax and how much do i have to pay?
What is income tax?
Income tax is the tax you have to pay to the government based on your annual income.
It applies to most types of income, including the salary you earn from your job, profits from your business, pensions, and even the rent you receive if you are a landlord.
Businesses, estates and other types of entities are also required to pay taxes on their profits.
Income tax is collected because it is the main source of government revenue. HM Revenue & Customs (HMRC) collects it on their behalf.
The government uses this money to fund public services such as the NHS, education and the social security system.
These revenues are also used to make public investments in things like housing, services and infrastructure.
How is income tax calculated?
Income tax is divided into tranches and is calculated based on the margin you are in.
The more income you earn, the higher your tax bracket, meaning you pay a higher amount of income tax.
The current system is designed to make paying taxes fair.
How much will I pay?
Each of us has a ‘personal deduction’ of £12,570. This is the amount we can earn without paying income tax.
If you earn more than your personal allowance, you pay tax on all income above the personal allowance at the applicable income tax rate, but the allowance itself remains untaxed.
Once you know your personal allowance, anything you earn above that will be taxed with income tax.
If you live in England, Wales or Northern Ireland in the 2022/2023 tax year, there are three marginal income tax brackets: the 20 percent base rate, the 40 percent higher rate, and the 45 percent supplemental rate.
You fall into the 20 percent base rate tax bracket if you earn between £12,750 and £50,270. This means that after your personal allowance, 20 percent of your annual income will be deducted.
Following the chancellor’s announcement today, the base rate will drop to 19 percent in the new year.
For people making more than £50,270, but less than £150,000, you’re in the 40 percent higher tax bracket and will face a 40 percent deduction.
Anyone who earns more than £150,000 falls under the additional tax bracket and is taxed at 45 percent. But this is now being abolished and higher earners now pay 40 percent regardless of how much income they earn.