What Are You Doing With Your Tax Cut?
If you are an employee, then, in most circumstances, you will see the benefit of the Autumn Statement’s ‘tax cut’ in your pay at the end of January. The ‘tax cut’ is, of course, a cut in your NICs. NICs have long been an income tax on earnings in all but name. Although the current Chancellor is probably the first to acknowledge the fact, many of his predecessors found it more convenient to allow the perception that NICs were not income tax, especially when NIC rates were being raised.
How much?
As the table shows, the boost to net income is modest and capped at the point higher rate tax begins (outside Scotland). For all but some of the lowest earners, it does not compensate for the five-year personal allowance freeze through to 5 April 2028.
Don’t lose it
The extra few pounds in the pay packet could all too easily disappear in general spending, even if inflation is now well below the double-digit levels seen at the start of last year. Instead, think how the small windfall could be used. For example, you could:
Reduce any expensive debt, such as the Christmas credit card accumulation; or
Top up your emergency fund; or
Increase your pension saving, perhaps by salary deduction so the extra income never even reaches your bank account; or
Boost regular savings, for instance making higher monthly ISA contributions.
The monthly amount may be modest, but over time it could make a meaningful impact.
Make sure you put your tax cut to good use – given the state of government finances there may not be many more in the next few years.
If you would like to save more tax than the Chancellor has provided you with, talk to us about your tax planning options.