Income tax changes may not apply equally across UK

The current UK government has virtually dismantled the Growth Plan that was presented only two months ago, and very few of the initiatives remain. 

On 17 November 2022, this time accompanied by an independent forecast by the Office for Budget Responsibility (OBR), new Chancellor Jeremy Hunt presented his Autumn Statement which exposed, perhaps, a truer picture of the UK’s economy and outlook.

Any government has two main ways in which to raise additional revenue:

1. Taxes can be increased. For example, national insurance contribution percentages were increased in April 2022, only to be lowered in November 2022.
2. Tax thresholds can be frozen. This is often referred to as a stealth way of increasing revenue, as expected increases in thresholds do not happen meaning more people are bought into paying the tax as incomes increase. The Budget 2021 froze the personal allowance at £12,570 until tax year 2026/27.

Hunt had to make his spending decisions against the backdrop of a 2019 Conservative Party Manifesto that the current prime minister has pledged to deliver on before the next general election.

The Chancellor applied these revenue raising exercises to rates and thresholds:

PAYE income tax

Income tax is a shared responsibility, not a devolved one and means we must look at any announcements made in Westminster and realise they may not apply equally across all parts of the United Kingdom.

Rates and thresholds

Sharing applies with regards to the thresholds, ie the point of earnings at which the employee starts to pay income tax or the point at which they start to pay at one of the higher rates:

For Scottish taxpayers, the Scottish government decides on the rates and thresholds that apply. They have complete discretion on which rates and thresholds to use and do not have to mirror those that apply anywhere else in the UK.

In Wales, the Welsh government has the power to use its Welsh income rates of tax (WRIT) powers for Welsh taxpayers. These powers allow the government to vary the rates that apply to Welsh taxpayers by + / - 10 percentage points. They have no powers to amend the income thresholds and must use those that apply to taxpayers that are not Welsh or Scottish.  Sometimes, this is referred to as thresholds that apply in England and Northern Ireland, though this is not strictly accurate. 

The 2022 Autumn Statement did not announce any changes to rates in UK countries (taxpayers that are not Scottish or Welsh). However, the thresholds will remain frozen and paragraph 5.20 of the green book announces the threshold applying to additional rate taxpayers will reduce to £125,140 from 6 April 2023. 

For tax year 2023/24, the following rates and thresholds will apply compared the tax year 2022/23:

Allowances

There are no sharing considerations with regards the income tax allowances as these apply UK-wide.

Personal allowance was already frozen until April 2026, but the Autumn Statement announced that it will remain frozen at £12,570 for a further two years to 6 April 2028. Taxpayers have their personal allowance tapered away at £1 for every £2 above £100,000, which means their personal allowance completely disappears at £125,140.

Paragraph 5.22 of the green book confirms that the married couples’ allowance and the blind persons allowance will be inflated by 10.1%, the value of CPI in September 2022.

This means that the allowances that will apply for 2023/24, compared to the tax year 2022/23 are:

*A Treasury Order will set the income limit for the married couple’s allowance, ie, the point at which the allowance is reduced to a minimum level.

Next steps

The devolved nations (Scotland, Wales and Northern Ireland) have received funding settlements to spend on areas that are devolved specifically for them, eg public services, education etc.

Therefore, the full UK picture cannot be established until we have considered the commitments made in the Scottish, Welsh and Northern Irish Budgets.