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

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:

Income Tax rates 2019-20:

Class 1 National Insurance Thresholds

Class 1 National Insurance Rates – Employee

Class 1 National Insurance Rates – Employer

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