What are tax allowances?

What are tax allowances?

Tax allowance is the term given to the amount of money you are allowed to earn before you start paying tax on your earnings. This tax year runs from 6 April 2023 to 5 April 2024, and your salary is calculated over this period to determine the sum total of your earnings and the amount of tax that you will be required to pay.

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Tax bracket changes for 2023 to 2024

Tax allowances and tax brackets are changing for the tax year 2023-2024 and whilst the initial £12,570 tax-free personal allowance will be protected for everybody that earns less than £100,000 a year, the rate of tax payable for higher amounts earned will increase.

People who are earning over £100,000 will lose £1 out of every £2 of their tax-free personal allowance. This means that once their earnings reach £125,140, they no longer have any tax-free allowance and will be paying tax on the entirety of their earnings.

Why tax brackets are changing

Income tax is the single biggest way in which the UK government generates revenue. It is anticipated that these changes will introduce 3.2 million additional taxpayers by 2028 and increase the number of people paying higher-rate tax to 2.6 million by the same point in time.

This will see increased revenue generation for the government which is hoped will address some of the issues caused by rising inflation.

Help and support

Tewkesbury accountants such as randall-payne.co.uk/services/accountancy/tewkesbury-accountants are well placed to assist individuals and small business owners in understanding what the changes will mean to them. They can also help to identify areas in which tax efficiencies can be made, such as claiming tax relief on any uniforms, mileage and equipment that are necessary for work.

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In conclusion

Anyone who is employed or self-employed needs to familiarise themselves with the changes to the tax brackets. You should also discuss your individual circumstances with your accountant to assure yourself that you are putting aside sufficient income to pay your annual tax bill and exploiting all opportunities for claiming tax relief.