Spring Budget 2024
What it means for you – our guide
Service: Following today’s Budget speech, it certainly feels like a General Election is near now, with a headline tax reduction ostensibly funded by abolishing the long standing political hot potato that is the Non-Dom tax regime.
When the initial 2% cut in National Insurance was announced in the Autumn Statement, our publication was sceptical of the impact of the reduction. Whilst undoubtedly a headline grabbing rate cut at the time, the impact of inflationary wage growth combined with freezing of key tax thresholds meant that many people would be paying more Income Tax and National Insurance combined in April 2024 compared to December 2023. However, aggregated with that earlier reduction (which took effect from January 2024 for employees) it is clear that for many, this is a genuine “tax” cut.
However, a fundamental aspect of our personal tax system that sadly remains unchanged is the significant complexity that arises from withdrawing reliefs from individuals (and families) as income increases. The removal of Child Benefit, Personal Allowance and the availability of Pension Tax relief at various income thresholds gives rise to effective income tax rates of up to 70% per additional £1 of income. While steps have been taken to increase the threshold at which the clawback of Child Benefit for higher earnings bites (and in the longer term, make the clawback “fairer”), a clawback will still exist and give an effective additional income tax charge.
These complexities mean that for many, the net effect of additional income (promotion, overtime, bonuses) in terms of increased net pay for an individual is completely unknown for both the employee and the employer. A key objective of whichever party wins the election that wishes to incentivise work and increase productivity should be to simplify this complexity so that the tax system is clearer and the consequences of work known – even if this means sacrificing future headline grabbing cuts in the rate of Income Tax.