BP expects to pay windfall tax after posting massive profits
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To fill the “fiscal black hole” caused by Liz Truss and Kwasi Kwarteng’s disastrous mini-budget in September, a Treasury source said Chancellor Jeremy Hunt is planning to bring in tax rises that will impact people across the country for years to come, according to reports. It’s claimed the official plans will be announced in this month’s Autumn Statement.
After meeting on Monday, Prime Minister Rishi Sunak and Mr Hunt agreed to roll out “stealth” increases in income tax and National Insurance over the next few years by freezing the personal tax allowances and thresholds.
The Telegraph reports the Treasury source said: “It is going to be rough. The truth is that everybody will need to contribute more in tax if we are to maintain public services.”
They continued: “After borrowing hundreds of billions of pounds through COVID-19 and implementing massive energy bill support, we won’t be able to fill the fiscal black hole through spending cuts alone.”
It is believed the Chancellor is looking to fill the shortfall in a ratio of 50 percent tax rises and 50 percent spending cuts, which indicates around £25billion of tax rises could be in store.
While Mr Sunak and Mr Hunt are understood to have ruled out boosting the rates of income tax, National Insurance, and VAT to prevent breaching the Tories’ 2019 manifesto, it’s thought the funds will be recovered by a slew of other tax increases instead.
This is because by just freezing the tax thresholds for a proposed additional two years after 2026, it’s thought to only garner savings of around £5billion a year – far lower than the £50billion shortfall.
The Times reported that public sector pay rises could be targeted, limiting the increase to just two percent in 2023/24 – despite the current double-digit inflation rate.
However, the source said there will be a commitment to continuing to protect the most vulnerable during what will be a “difficult period”.
But, whether or not the state pension will be boosted in line with the triple lock is still yet to be confirmed.
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The tax changes will be revealed in the Autumn Statement on November 17, which will set out tax and spending decisions for the next five years.
What is income tax?
Income tax is the Government’s main source of revenue, which deducts a certain amount from an individual’s annual earnings or profits.
The rate of income tax paid depends on how much a person earns and the tax band they fall into.
Most people have a personal allowance, amounting to £12,570 in the 2022/23 financial year, which allows them to earn up to this amount tax-free.
However, those who earn over the personal allowance will be taxed on the amount of earnings that call into each bracket, ranging between 20 percent, 40 percent, and 45 percent.
What is the 20 percent tax bracket?
Also known as the basic rate bracket, the 20 percent tax is applied to earnings from £12,571 to £50,270.
What is the 40 percent tax bracket?
The 40 percent tax bracket, also know as the higher rate, is applied to earnings from £50,271 to £150,000.
What is the 45 percent tax bracket?
The 45 percent tax bracket, known as the additional rate, is applied to earnings over £150,000.
People can work out how much income tax they pay. To do so, they should split their annual salary out into these bands.
For example, if a person was to earn an annual salary of £30,000, they’d just be paying the basic rate tax.
This means £12,570 of their earnings will be tax-free (personal allowance), but the remaining £17,430 will fall into basic rate, of which they’ll be taxed 20 percent of it.
However, if a person were to earn an annual salary of £55,000, they’d be paying both the basic rate and the higher rate of tax on their earnings.
This means, as above, £12,570 of their earnings would be tax-free, earnings from £12,570 to £50,271 (£37,701) will be taxed 20 percent, and the remaining £4,729 will be taxed 40 percent.
National Insurance tax
While the Chancellor reversed nearly all of Ms Truss and Mr Kwarteng’s mini-budget tax cuts, it’s been confirmed their reversal of Mr Sunak’s 1.25 percent National Insurance increase will remain in place.
The reversal of the hike will mean National Insurance (NI) contributions will go back down to 12 percent in November.
NI is based on bands, and the amounts deducted from a person’s payslip depend on their NI category letter, and how much of their earnings fall within each band.
Most employees are on category letter A, but people can find this out on their payslip.
Likewise to income tax, weekly earnings are split into three thresholds and the total figure will be extracted.
This total will then be multiplied by however many weeks in the month, and that will be the figure contributed towards NI per month.
People can find the full list of bands from A to Z here.
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