Latest UK Tax Update starting April 2024 | UK Salary Cut
When combined with the autumn reductions, it means 27 million employees will get an average tax cut of £900 a year. Today I have got some exciting news from the spring budget announced by the UK Chancellor Jeremy Hunt. Starting from April 6th, 2024, the main class one employer, National Insurance contributions and ICU rate is dropping from 10% to 8%. Class one employer National Insurance is the one paid by salaried employee. That’s the second cut in just six months. So what does this mean for you? Well, it means a little bit more money will be landing in your bank account each month, as there will be less National insurance deducted from your pay. But before I delve into the UK tax system and discuss how this national insurance tax cut will benefit salaried employee like us: UK Tax
Today we are breaking down the income tax deductions on salaries earned in a financial year. So first let’s clarify the terms gross pay and net pay. Do you know that? Well let’s see. Gross pay is your income before any taxes and deductions often referred to as your annual salary. Net pay, on the other hand, is what you take home after deductions like income tax and national insurance have been accounted for. Now, looking at the typical UK payslip shown on your screen, I’ll focus on two deductions income tax and National Insurance. But before that, let’s understand HMRC or His Majesty’s Revenue Customs who are there. They are responsible for managing taxes across the UK, ensuring the funds contribute to various sectors like welfare, health care, education and more.
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Now let’s get into the specifics of income tax and National Insurance contributions as an employee. These are deducted automatically through the Paye system, so you don’t need to worry about handling them yourself. But it’s always good to know how much deduction is happening each month from your gross salary. Income tax bands are different if you live in Scotland, so I’m covering only England, Wales and Northern Ireland in this post now, starting with income tax, there’s a concept called personal allowance, which refers to the amount of income on the individual can earn each year before they start paying income tax. It represents a tax free threshold. So as shown in the table on your screen, as an employer, you pay 0% tax on earnings up to 12,005 £70. Then you pay 20% on anything you earn between 12,005 71 and 50,270, and then you’ll pay 40% income tax on earnings between 50,000 to £71 to one 25,001 40. And if you earn 105,001 41 and over, you pay 45% tax.
Now let’s consider National Insurance contributions unlike income tax and now is not an annual tax but applied each pay period. The threshold aligns with the income tax personal allowance, meaning you start paying an eye once your earnings exceed £242 per week, or £1,048 per month. So if you earn less than this amount in a week or month, you won’t pay any National Insurance on those earnings. This means if you earn extra in one month, you will pay extra National Insurance, but you won’t be able to claim the extra back even if your pay is lower during the other months of the tax year, as shown in the table on the screen, the National Insurance rate you paid depends on how much you earn, like 10% of your weekly earnings between, say, £242 to 967 a week or 1048.01 to £4189 a month. The annual rate will drop to 8% from April 6th, 2024. For the lightning, the burden for employers.
This means you will save more on your NI contribution, resulting in increased take home pay. Now let’s understand how much tax and any will be deducted with an example of Rahul in current financial year 2023 and 2004, let’s say Rahul earns £52,000 annually. You did pay 0% on the first £12,570. You pay 20% on the next 37,700, which is 7005, £40 and 40% on the remaining amount, which is £6.92 for National Insurance till 5th of April 2024. With Rahul’s 52,000 salary, he is paying 3,804.60 and nine in a year approx this year. But as per the new announcement from six of April 2004, if you earn between 12,504 and £50,000 annually, you pay 8%. And I hope you understand now anything above £50,000 incurs a 2%, any rate. So, continuing with Rahul’s example of £52,000 salary, you will pay approx 3030. 3.08 National Insurance next financial year, which means you pay £770 less National Insurance. Yes, you understood it correctly. It means more £770 in your bank account or for Rahul in this example for the next financial year. Now let’s understand this again with second example. So you are in any salary bracket from 12,005 70 to 50,002 70 earning in the UK. For each 1000 you earn £12,500. You saved around £200 more. So if you earn 22,500, you will save £200. If you earn 32,500, you will save £400. For salary 42,500 you will save £600. For salary 52,200 you will pay £750 a year. I hope I’m able to explain you well with Rahul’s example.
which is about answering some of the common questions about tax deduction.
1. I own less than 12,500. Why is my tax detected?
So if you work in the UK and you earn less than 12,500, you might still see tax deducted on your payslips. But do not worry, you will get this back at the end of the tax year, which is in April. As tax returns ends. If you earn a taxable income, you could still get tax return at the end of the tax year because you have paid too much tax throughout the last financial year.
2. Is there a way I can save tax on my salary income by making investments?
No. But if you are earning money via investments like stocks, you can save tax by investing via an Isa account. So stocks Isa dividends are separate topic and if you wish to learn more about it, do let me know in the comment section and I’ll make a detailed video explaining that.
3. What should I do if my tax code is wrong?
Well, you can call HMRC, Revenue and Customs on the phone and ask them to fix your tax code. They are usually helpful, but sometimes you might have to wait a while on the phone even one.
4. How can I check how much money my company has paid to HMRC on my behalf?
Well, you can check online by making an account on the government website or by using the HMRC.
5. What’s the difference between P45 and P60?
Well, a P45 is given to you when you change jobs. It shows your earnings and tax payments from your old job. On the other hand, a P60 summarises all your tax information for the whole year, showing how much tax you have paid and your total earnings. So understanding the UK tax system is important and this changes are welcome news for employers. If you have any questions drop them in the comment section below. Thanks
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