Changes announced below are accurate as of 13/11/2024.
Tax Rates & Thresholds
Given the Government’s commitment not to raise taxes for working people, it should be no surprise that income tax rates and thresholds remain unchanged for earned income.
Perhaps more unexpected, given the Government’s recent clamour to define “working people”, is that fact that not only employment earnings but other forms of income – including dividends and rental profits – have been protected from increased tax cost.
Whilst defying expected income tax increases may seem good news, it is important to remember that the freezing of income tax thresholds will continue the process of fiscal drag. In essence, any year in which tax thresholds are not increased in line with inflation represents a tax increase in real terms. Over time, taxpayers will pay more tax at higher rates as a result.
The Chancellor did however confirm that the threshold freeze would end 2027/28, and from the 2028/29 tax year onward thresholds will increase in line with inflation.
Coincidentally, the next general election is tabled to take place no later than August 2029, shortly after these income tax savings begin to be enjoyed by much of the voting public.
High Income Benefit Charge
The High Income Benefit Charge is the mechanism by which child benefit is effectively withdrawn for high earners. The effective rate is 1% for each £200 earned over £60,000 a year, by the higher-income partner. Therefore, the benefit is fully withdrawn where income of the higher-income partner reaches £80,000 a year.
This has often been considered highly unfair for single earning families. Currently it is possible for a single parent earning £80k to completely lose child this benefit, and yet two parents each earning £59k – i.e. £118k in total – are not impacted at all.
The previous government suggested resolving this unfairness by looking at household income, rather than individual income, which was a broadly welcomed measure. However, it has rather been confirmed in the Budget that this will no longer be proceeding. It is considered too costly to implement (at £1.4 billion), which if anything is even greater indictment of its unfairness.
Instead some minor changes to administration in this area have been announced, allowing employed people to include the charge in their tax code rather than via self-assessment. The climb down is disappointing.
Making Tax Digital
Finally, following delay after delay, we are now advised that Making Tax Digital for Income Tax WILL be introduced from April 2026 for sole traders and landlords with incomes over £50,000.
Those with income over £30,000 will have to comply from April 2027.
It is strongly recommended that affected taxpayers – and business owners more broadly – adopt Cloud Accounting technologies, to make the reporting as easy and compliant as possible.
Get in touch with get with your local Xeinadin Cloud Technologist if you require assistance.
Written by Adam Owens CTA, Tax Advisory Partner at Xeinadin
