Impact of Change in Income Tax Additional Rate Threshold

Change in Income Tax Additional Rate

On 22 November 2022, the Autumn Finance Bill was published and one of the key changes announced was the change in the income tax additional threshold. The threshold is now reduced from £150,000 to £125,140. This will become effective from 6 April 2023 to make sure that those having the highest incomes also contribute the most to public finances.. It is notable that at present the tax rate on taxable income over £150,000 is 45%. Such a major change is bound to have some impact. So, let’s learn the kind of impact it will make on income taxpayers, employers, or businesses. Here we go!

More revenue for the government

The immediate impact of change in the income tax additional rate threshold is the inclusion of more taxpayers into the higher tax band. This phenomenon is known as the fiscal drag in which Government tries to increase its overall tax revenue without increasing the existing tax rates. According to the Office for Budget Responsibility (OBR) which is an independent fiscal watchdog, this measure will help the government to have more than 25 billion pounds during 2027-2028. So, ultimately, the move is to get more revenue to improve the country’s financial credibility. There is increased speculation that such a strong measure is the need of this hour to handle this crisis before things become out of hand.

Reduced spending on non-essential items

As a result, the UK economy will gradually slow down because people will gradually cut non-essential expenses like leisure activities or travelling. They will instead focus on meeting the necessary expenses like debt payments, food, shelter, medical needs, and so on. This can prove to be a serious blow to small businesses that are still struggling to recover from the effects of the pandemic. Even some sectors like hospitality and manufacturing may suffer and people associated with these sectors may face job loss sooner or later.

Apart from the above impacts, it’s natural that employers have to update their payroll software to reflect these changes. Moreover, it is vital to understand that the United Kingdom is experiencing a high inflation rate never seen before. Some analysts also blame this inflation rate on Brexit. According to some, Brexit has a negative impact on the economy, and such a situation is inevitable. Blame it on higher prices for food items, high energy costs, or the war in Ukraine, the high inflation rate is a widespread concern for all. Many people are labelling the recent change in the income tax additional rate threshold as a stealth tax.

In short, taxpayers should make serious efforts to manage their finances well. For the same, keeping an accurate record of income and expenses is essential. Else they might suffer in the long run. Based in London and Crawley, CoreAdviz has a vast team of skilled accountants who can help in this endeavour.