MILLIONS of households will be worse off following the news that the freeze on income tax will be extended.
As part of his Autumn Statement the Chancellor announced that rates and thresholds will be frozen until 2028.
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Income tax is paid at different rates, depending on how much you earn – and some people pay nothing at all.
That’s because there’s something known as the personal allowance, which is an amount you can earn before you start paying income tax.
The current freeze was meant to come to an end in 2026, but extending this will drag millions more into paying a higher tax rate.
This is due to inflation and rising wages and will mean more workers will go over the thresholds for paying higher tax.
Thresholds would usually be tweaked to take both of those things into account.
If you earn £12,570 or less, you currently pay no income tax.
On earnings between £12,570 and up to £50,270, you pay the basic income tax rate of 20%.
Wages of £50,271 and above are taxed at the higher rate of 40%.
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This means that if you are a low and middle income earner you will be hit by the freeze.
Meanwhile, higher earners will be stung for more tax after Mr Hunt dragged them into the 45p rate.
From April, anyone earning more than £125,140 will pay the additional income rate – down from the current threshold of £150,000.
The freeze for lower and middle income earners means that what you pay in income tax this year will stay the same next year, unless you get a pay rise.
You can work out how much tax you will pay in the next year by using income tax calculators.
How to use an income tax calculator
We recommend using the Money Saving Expert calculator or the Government’s own to work out how much you will pay.
If you’re using the MSE calculator you will be asked to input how much you earn (before tax) either by year, month, four weeks, two weeks, a week, a day or an hour.
This means that no matter how often you get paid you can still work it out easily.
Then simply select the current tax year (2022-23) and your age range.
You will then be asked how much you put into a pension a month, although this part is optional.
It will then tell you how much you will take home in a year/ each month, and how much you’ll pay in tax.
It also tells you how much you’ll pay in National Insurance contributions.
The Government’s calculator works in a similar way but it will also ask you for your tax code too, if you don’t know your tax code it will give you a default code.
Meanwhile, higher earners will be stung for more tax after Mr Hunt dragged them into the 45p rate.
