A tax cut … but is it?
The headline reads taxes have been cut.
A more realistic headline is ‘you’ll pay less tax than expected but still a lot more than before’.
That’s thanks to ‘fiscal drag’ or ‘stealth tax’.
What does this mean?
Regular pay has increased by 14.2% since April 2021 and inflation (CPI) by a whopping 19.9% in the same time.
Meanwhile, the tax bands haven't changed and are expected to stay the same until 2028.
If you were employed and earning £100,000 in April 2021, you could now be earning £114,200 (increased by regular pay).
You’re now paying £3,670 more tax than if all income tax bands and thresholds had increased by the rate of inflation, even when considering the changes announced yesterday.
That’s the effect of ‘fiscal drag’ or the ‘stealth tax’.
What tax has been lowered?
National insurance has been cut.
For employed people, national insurance is reduced by 2% on earnings in the basic rate band. Maximum saving is £754 a year, or £63 a month if earning above £50,270.
For self-employed, class 2 weekly national insurance contributions are being scrapped, saving £3.45 a week. Self-employed profits within the basic rate band will have national insurance cut by 1%. Maximum saving is £556 a year if earning above £50,270.
The cuts start in January, so you’ll feel the impact almost straightaway.
It's decent news but working people are still shouldering the largest tax burden.
What can you do?
It’s even more important we maximise the money we have.
If it feels like you're treading water with your finances and need a boost, maybe we can help.
just reply to this email, or book a free 30 minute call with me below.