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Personal tax: Chancellor sticks to threshold increase pledge

Rishi Sunak may have only been in the job for less than a month, but when he took to the dispatch box on 11 March he didn’t stray from his predecessor’s personal tax pledges.

11th Mar 2020
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Budget 2020

The centrepiece of Sunak’s personal tax announcements was to continue the government’s Budget predilection for increasing the national insurance threshold.

National insurance thresholds as expected

In his speech, Sunak confirmed the government’s manifesto promise to increase NIC from £8,632 to £9,500. When it comes into effect in April, Sunak said this will be a tax cut for 31m people.

The small print in the Budget red book explained further than the measure will remove 1.1million from Class 1 and Class 4 altogether.

George Parker from Blick Rothenberg branded this announcement as “a great NIC boost to all”. He calculated these NIC allowance changes as save employees £104 a year, and self-employed individuals £78 a year.

As Kate Upcraft reported last month, this announcement was expected and was first revealed by the former Chancellor Sajid Javid back in January 2020.

This is another step towards the government achieving its long-held ambition to raise the thresholds to £12,500. If the government is successful in meeting that ambition, the treasury expects a typical employee would save £450 per year.

The Chancellor said the increases to personal allowance increase and national living wage will make full-time employees on the minimum wage more than £5,200 better off than in 2010.

However, Sunak’s decision to raise the national insurance threshold may have ticked off a manifesto pledge but it did raise questions from those calculating the costs.

“Whilst raising the threshold for paying National Insurance contributions (NICs) to £9,500 a year will put more money into UK taxpayers’ pockets, ultimately it doesn’t come cheap,” said Brian Palmer, the AAT’s tax policy advisor.  

“The policy will cost over £2bn a year, projected to rise to £10bn a year if the government achieves its ambition to raise the threshold further to £12,500 a year, in line with income tax. That means that, unless cuts are made, funding will need to be found from tax increases elsewhere, such as abolishing the proposed cut in corporation tax.”

Tapered annual allowance for pensions

Sunak also said he listened to concerns regarding the pensions tax system which he noted was preventing doctors from taking on more hours.

In order to reduce those affected by the tapered annual allowance, the Chancellor increased the taper thresholds by £90,000.

Therefore, the “threshold income” will be £200,000 and anyone below this level will escape the tapered annual allowance from 2020-21. The annual allowance will only begin to taper down for individuals who also have an “adjusted income” above £240,000.

Sunak said the announced measures would take around 98% of consultants and 96% of GPs out of the taper altogether.

At the same time, the Chancellor also reduced the minimum annual allowance from £10,000 to £4,000. This measure will only affect those with incomes (including pension accrual) above £300,000.

Meanwhile, the proposals to offer greater pay in lieu of pensions for senior clinicians in the NHS pension scheme will not go forward.

Other personal tax changes

Elsewhere, Sunak confirmed the news leaked to the press over the weekend that from January next year, there will be no VAT whatsoever on women’s sanitary products.

The Budget red book also contained a raft of other personal tax changes, including:

  • Income tax and national insurance exemptions for bursary payments to care leavers
  • Increasing to the flat rate deduction for homeworking: the maximum tax deduction to employees to cover additional household expenses increased from £4 per week to £6 per week
  • Introducing exemptions from income tax, inheritance tax and capital gains tax for payments made on or after 3 April 2019 under the Windrush Compensation Scheme
  • Introducing income tax, inheritance tax and capital gains tax exemptions for payments made on or after May 2020 under the Troubles Permanent Disablement Payment Scheme; and
  • A top-slicing relief (TSR) will apply to all relevant insurance policy gains occurring on or after 11 March 2020.

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