Recently, HMRC released new Income Tax liability statistics covering the tax years 2020 to 2021 and 2023 to 2024 – but what do the latest figures mean?
The table below lists the average Income Tax rate for the main taxpayer categories, showing the average percentage of income paid in tax by marginal rate in 2020 and the projected percentage for the current tax year.
|
Tax Year |
Basic Rate |
Higher Rate |
Additional Rate |
|
2020 – 2021 |
9.5% |
21.8% |
38.3% |
|
2023 – 2024 |
9.9% |
20.8% |
38.0% |
These numbers project a 0.4% increase for basic rate taxpayers, but decreases of 1% and 0.3% for higher rate and additional rate taxpayers respectively.
At first glance, this seems like good news for higher and additional rate taxpayers, but it doesn’t necessarily mean that people are actually paying less tax.
What’s the story behind the Income Tax numbers?
HMRC’s explanation for these differences is the simple statement that average tax rates vary over time depending on taxpayer numbers, both overall and in each tax band, in addition to income growth and changes to thresholds and allowances.
Realistically, the average for basic rate taxpayers has increased because average weekly earnings have increased since 2020, while the tax-free Personal Allowance
has barely risen at all, pushing more earners into the basic rate band.
When it comes to the decreasing average for higher rate taxpayers, HMRC did not mention in their summary that the upper threshold for this tax band was higher in 2020. It has now dropped from £150,000 to £125,140, so those at the higher end were pushed into the additional rate band.
The lower starting point for the additional rate tax band means there are around twice as many taxpayers in this bracket than before, with those at the lower end pulling down the average due to their lower incomes.
With the Office for Budget Responsibility forecasting around 3.5 million people moving into a higher Income Tax band between 2023 and 2028 due to threshold and allowance freezes, it’s important to make sure you know what your tax liabilities are and how changing rates could affect you.
Do you need professional tax advice?
Do you know which tax band you fall into for the current tax year, and whether income changes could affect your tax liability? Do you have any concerns about your tax code?
If you need guidance on reviewing your tax situation and managing your liabilities, you can consult with our tax advisers at gbac. Our friendly team of accountants in Barnsley could help you to maximise your tax savings while maintaining compliance.
Contact us by phone on 01226 298 298 or send an email to info@gbac.co.uk to enquire about our financial services.