Pay Times 2019: Are you feeling the gain or the pain?

A couple working out their tax thresholds

Now that the vast majority of us are at least two paydays into the new financial year, what noticeable effect (if any) have the changes in tax thresholds and allowances introduced on April 6 had on our spending power and bank balances?

It’s worth recalling that, speaking at the time the changes took effect, Chancellor Phillip Hammond said the cuts could be made “thanks to our careful management of the public finances and the hard work of the British people”, with the Government claiming that 32 million people in the UK would see their Income Tax bill reduced compared to 2015-16.

So what were the changes? In the UK and Northern Ireland*, the increase in the basic rate Income Tax (20%) threshold, from £11,850 to  £12,500, translates to an extra £130 a year in pay packets, so most people may already have noticed an additional £10 a month in their salaries.

Higher earners will have even more to smile about, as the threshold for higher-rate Income Tax (40%) increased from £46,350 to £50,000, meaning an extra £860 a year, or more than £70 a month (the £150,000 threshold for additional rate income tax (45%) remained unchanged).

But some of that increase for higher earners was wiped out by changes to National Insurance (NI), with the upper limit of the 12% NI band increasing to £50,000 to match the changes in Income Tax thresholds. This clawed back around £340 a year from higher earners.

And spare a thought, if you want to, for anyone earning between £100,000-£125,000. For salaries above £100,000, the tax-free personal allowance tapers away at £1 for every additional £2 earned. This can effectively translate into a tax rate in this pay bracket of 60%. For example, someone earning £100,000 who is awarded a £1,000 pay rise will pay £400 in Income Tax on the additional pay; but they will also lose £500 of their personal allowance – and that £500 is taxed at 40%, costing them an additional £200. In total, they will lose £600 of the original £1,100 pay rise in Income Tax, at an effective rate of 60%.

The full changes to Income Tax and National Insurance, which took effect from April 6, 2019, can be seen below.

*Income tax rates for Scotland differ from those for England, Wales and Northern Ireland, and are also listed below.

Income Tax rates 2019-20:

Earnings (England, Wales, Northern Ireland)

Rate

Below the personal allowance (PA) of £12,500     

Nil

£12,500 to £50,000 (basic rate)     

20%

£50,000 to £150,000 (higher rate) 

40%^

Over £150,000 (additional rate)   

45%

^PA drops by £1 for every £2 earned over £100,000.

 

 

Income Tax rates 2019-20:

Earnings (Scotland)

Rate

Below the personal allowance (PA) of £12,500

Nil

£12,500 to £14,549 (starter rate)

19%

£14,549 to £24,944 (basic rate)

20%

£24,944 to £43,430 (intermediate rate)

21%

£43,430 to £150,000 (higher rate)  

41%^

Over £150,000 (additional rate)        

46%

^PA drops by £1 for every £2 earned over £100,000.

 

 

Class 1 National Insurance Thresholds

Lower Earnings Limit (LEL)

£118 per week

£512 per month

£6,136 per year

Primary Threshold (PT)

£166 per week

£719 per month

£8,632 per year

Secondary Threshold (ST)

£166 per week

£719 per month

£8,632 per year

Upper Secondary Threshold (under 21) (UST)

£962 per week

£4,167 per month

£50,000 per year

Apprentice Upper Secondary Threshold (apprentice under 25) (AUST)

£962 per week

£4,167 per month

£50,000 per year

Upper Earnings Limit (UEL)

£962 per week

£4,167 per month

£50,000 per year

 

Class 1 National Insurance Rates – Employee

National Insurance category letter

LEL – PT including

PT – UEL including

UEL +

A

0%

12%

2%

B

0%

5.85%

2%

C

Nil

Nil

Nil

H (Apprentice under 25)

0%

12%

2%

J

0%

2%

2%

M (Under 21)

0%

12%

2%

Z (Under 21 – deferment)

0%

2%

2%

 

Class 1 National Insurance Rates – Employer

National Insurance category letter

LEL – ST including

ST -UEL/UST/AUST including

UEL/UST/AUST +

A

0%

13.80%

13.80%

B

0%

13.80%

13.80%

C

0%

13.80%

13.80%

H (Apprentice under 25)

0%

0%

13.80%

J

0%

13.80%

13.80%

M (Under 21)

0%

0%

13.80%

Z (Under 21 – deferment)

0%

0%

13.80%

 

This article was written by Amy Sadler. If you have any questions regarding this article you can contact Amy using the form below.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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