People could have more money in their pockets next year if income taxes and social security contributions go up.
A change in Personal Allowance – how much you can earn before paying income tax – is likely to increase from £ 12,500 to £ 12,570.
The level is expected to rise in line with inflation – using the consumer price index (CPI) of 0.5 percent from September. the express reports.
While this sounds like good news, inflation likely means you’ll be paying more for things in the year ahead.
The base price should also increase.
This is the amount of your taxable income between £ 12,501 and £ 50,000, taxed at 20 percent.
Amounts above this value will be taxed at a higher tax rate.
The principle should be set at £ 37,700, up from £ 37,500 this tax year, according to the Institute of Accountants in England and Wales (ICAEW).
That sounds like a victory for those on low and middle incomes again – although inflation could once again erode all those gains.
And be warned – the Personal Allowance is not granted on taxable income over £ 125,000.
The details of the change in personal allowance were set out in Chancellor Rishi Sunak’s spending review.
The report said, “The government will increase the personal income tax allowance 2021-22 and the higher tax rate in line with September’s CPI.
“The government will also use the September CPI as the basis for setting all social security thresholds and thresholds, as well as grade two and three social security contribution rates for the period 2021-22.”
Income tax rates and bands vary based on how much you earn.
For the current tax year – 2020/21:
- the personal allowance up to £ 12,500 – which means the tax rate is zero percent.
- The principle applies to taxable income between £ 12,501 and £ 50,000 which is taxed at 20 percent.
- The higher tax rate applies to taxable income of £ 50,001 to £ 150,000 – with a tax rate of 40 percent.
- The additional rate applies to taxable income over £ 150,000 – taxed at 45 percent.
The Institute of Accountants in England and Wales (ICAEW) has calculated that the personal allowance should increase to £ 12,570 for 2021/22.
The property tax rate limit for income tax will also increase, and they believe the property tax rate limit will be set at £ 37,700 for 2021/22, up from £ 37,500 this tax year.
The CPI inflation figure used for these estimates is also used for new thresholds and thresholds for social security, as well as for the rates of social security contributions of classes 2 and 3 in the year 2021/22. Your money reports.
The Low Income Tax Reform Group (LITRG) informed this website that Social Security Contributions, the primary Tier 1 threshold at which people pay contributions, could increase from £ 183 per week to £ 184 per week.
Again, this sounds like good news on paper, but inflation must be remembered.
The LITRG calculates that those who earn £ 25,000 a year could end up paying £ 14 less income tax and £ 5.64 less on Class 1 Social Security contributions.