At a time when the cost of living is rapidly rising, Chancellor Rishi Sunak made a raft of new economic announcements during his Spring Budget.
While he confirmed National Insurance is still to rise for workers, Mr Sunak also announced a long-term plan to cut the basic rate of Income Tax will by one pence to the pound.
The changes are expected to be introduced by 2024.
But what are the current Income Tax bands and what will the changes mean for you in the long-term?
Here’s everything you need to know.
What are the Income Tax bands for 2022/23?
Those earning £12,251 to £50,270 will be taxed at a rate of 20%, which is the basic rate.
Earners with a higher yearly pay from £50,271 to £150,000 will be taxed at the higher rate of 40%.
Anyone earning over £150,000 will be taxed at the additional rate, which currently sits at 45%.
What is the Personal Allowance for 2022/23?
The Personal Allowance for UK workers is currently any money earned up to £12,570.
This means any money earned up to this amount will not be taxed.
The Personal Allowance is valid for the vast amount of workers, both those who earn less than £12,570 and those who earn over this amount. For example, if you were to earn £30,000 per year, the first £12,570 of these earnings will not be taxed.
A Personal Allowance is not applicable on taxable income over £125,140.
What Income Tax changes will be introduced?
During his Spring Budget, Mr Sunak made the announcement that Income Tax would be cut by one pence to the pound by 2024.
The Chancellor said the move would provide a “tax cut for employees worth over £330 a year”.
In terms of bringing the tax cut forward, Mr Sunak explained this was not yet possible, saying: “It would clearly be irresponsible to meet this ambition this year — and yet I refuse to let that ambition wither and drift.
“By 2024, the OBR currently expects inflation to be back under control, debt falling sustainably, and the economy growing. Our fiscal rules are met with a clear safety margin.
“So, my final announcement today is this: I can confirm, before the end of this Parliament, in 2024, for the first time in 16 years, the basic rate of income tax will be cut from 20 to 19p in the pound.
“A tax cut for workers, for pensioners, for savers. A £5 billion tax cut for 30 million people. It is fully costed and fully paid for in the plan announced today.”
However, the announcement was met with hesitation with many pointing out that workers will be paying more through the increased National Insurance (NI) hike, which Mr Sunak confirmed in his statement.
NI contributions will rise by 1.25% on income over £12,570 in April 2022.
Paul Johnson, the director of the Institute for Fiscal Studies (IFS), criticised the announcement, saying: “If he [Sunak] wants to be remembered as a tax-reforming chancellor, so far he is headed in the wrong direction.
“The combination of increased NI rates and a reduced income tax rate will make the tax system both less equitable and less efficient.”
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