How much tax will I pay? UK tax rates explained and changes announced in Budget 2021
One of the biggest questions on Budget Day is how much tax we might have to pay from now on.
Mr. Sunak made no drastic tax changes today, following his hike in national anti-Manifesto insurance in September.
So how much tax do we have to pay? Here’s all you need to know.
What are the current income tax rates?
Income tax is the tax you pay on the money you earn while working, and it hasn’t changed.
The amount of income tax you pay each tax year depends on:
- How much of your income exceeds your personal allowance
- How much of your income is in each tax bracket
The standard personal allowance is £ 12,570. This means that anyone who earns less than that per year does not have to pay income tax, and anyone who earns more does not have to pay income tax on £ 12,500 of their income. totals.
Your personal allowance may be higher if you apply for marriage allowance or blind allowance, or less if you earn more than 100,000.
After that, the amount of income tax you pay increases with the amount you earn.
- On income between £ 12,571 and £ 270 you pay the base rate of 20 percent
- On income between £ 50,271 and £ 150,000 you pay the higher rate of 40%
- On income over £ 150,000 you pay the additional 45 percent rate
What about national insurance?
National insurance contributions increased in September following a controversial 1.25 percentage point tax hike introduced as part of social protection reforms.
The decision was made so that more money could be spent on the social protection system. It is not free for everyone, unlike the NHS, and includes the provision of care homes.
The government announced on September 7 that those without assets worth more than £ 20,000 will receive free social care and that social care will be capped at £ 86,000 over a person’s lifetime .
Boris Johnson has confirmed to Parliament that the new tax rates will take effect from April 2022.
Under the current system, people pay 12% on income between £ 9,568 and £ 50,270, and 2% on any income over £ 50,270.
Here’s how your national insurance payments will be impacted by a 1.25 percentage point increase:
- People earning £ 10,000 a year are currently paying £ 52 – they will pay £ 5 more each year (£ 57) due to the hike
- Those with a salary of £ 20,000 and currently paying £ 1,251 per year will pay an additional £ 130, for a total of £ 1,381
- People earning £ 30,000 a year and now paying £ 2,452 will pay an additional £ 255, for a total of £ 2,707
- For those earning a salary of £ 40,000 and currently paying £ 3,652, a 1.25 percentage point increase means they will have to shell out an additional £ 380 each year, bringing the total to £ 4,032
- People who earn £ 50,000 a year now pay £ 4,852 – tax hike means increase to £ 5,357, an annual increase of £ 505
And the housing tax?
There are reports that Rishi Sunak may increase the housing tax in today’s fall budget.
The Chancellor declined to rule out such a move at the Conservative Party conference earlier this month, and the Institute for Fiscal Studies (IFS) warned that an increase may be needed to meet demand for the advice.
The chancellor refusing to rule him out at the conference means it certainly could happen, but the government has yet to announce anything and no details on the housing tax have been disclosed, despite many other plans by Mr. Sunak already reported.
Ministers may remain silent about such plans, as they would be largely unpopular, or the Chancellor may simply have decided that now is not the time to increase the council tax, especially after an increase of 1, 25% of national insurance was unveiled earlier this year.
What about other taxes?
Inheritance tax rates have not changed, and although the Chancellor was due to increase the capital gains tax, which was frozen until 2026 in the last budget, he did not.
The Chancellor unveiled “the most radical simplification of alcohol taxes in more than 140 years”.
He said the duty rates would be based on the principle that “the stronger the drink, the higher the rate.” Mr. Sunak said it would “end the era of cheap, high-potency drinks”. This will affect products such as fortified wine or high grade white cider.
Conversely, less strong alcohols such as fruit ciders, liqueurs and rosé wines will see their prices drop.
The Chancellor announced that the planned increase in fuel taxes would be canceled due to prices at the pump being at their highest level in eight years. This is the 12th consecutive year that fuel taxes have been frozen.
Mr Sunak has pledged to help local transport “everywhere” and said £ 5bn will be spent on maintaining local roads, including repairing potholes.
What about business?
Corporate rates will be reduced for the sectors hardest hit by the pandemic. Mr Sunak said pubs, concert halls, cinemas, restaurants, hotels, theaters and gymnasiums are eligible for a 50% reduction on their bills, up to a maximum of £ 110,000. He said: “It’s a business tax cut worth almost £ 1.7 billion.”
He said the corporate rate system would become fairer, with more frequent revaluations every three years from 2023.
Mr. Sunak also announced further “Business Rate Improvement Relief” that will allow businesses to make improvements to their properties, such as installing CCTV and air conditioning units, at no additional cost. He said: “From 2023, every business will be able to make real estate improvements – and for 12 months will not pay any additional business rates. “
Corporate tax is already set to rise from 19% to 25% from April 2021, but Mr Sunak faces pressure to make government revenue meet spending pressure.
The bank surcharge has been reduced from eight to three percent. This will save banks and large corporations billions of pounds.