Reduction in overall rate of Income Tax would not help
Reports that the Government may reduce the overall rate of Income Tax by 1p in April 2023 does nothing to help the current cost of living crisis and would do little to lessen the impact of frozen rate bands.
Director Robert Salter comments: “Even if they did cut the tax rate by 1% as suggested, this won’t match up to the fact that National Insurance contributions (NICs) have already risen by 1.25% from April this year.
“The 1% cut doesn’t lessen the impact of the frozen rate bands and 20% bands for most people. The reality is that people being pushed into paying tax because of frozen personal allowances or paying tax at 40% or above could still be significantly worse off in many cases.
“There is also the issue of whether the 1% would just be for regular Income Tax or also dividend taxes? I suspect at this stage that the rate would only be for regular Income Tax and not necessarily for dividend taxes.
“If so, this could easily result in freelancers working through digital service companies facing high taxes which are, in part, designed to pay all the self-employment income support scheme, SEIS, and furlough grants which a large number of them weren’t actually able to benefit from.
“There needs to be some creative thinking from the Government about how to address the current crisis and this idea is not one of them.”
If you would like to discuss any of the above, please get in touch with Robert Salter using the details on this page.