Updated: April 2020
If you need the tax rates for next year, click the link to get the current 2020-21 UK income tax rates.
Below is a look at the UK income tax rates for 2019-20. We’ll also explain how these changes will affect your tax bill.
The government announces changes to income tax in the autumn budget. The most significant changes announced in the latest one — the Autumn Budget 2018 — were:
Here are the new income tax rates and thresholds for 2019-20. This means that the minimum income you have to earn in a year to start paying tax in the UK will now be £12,500. Similarly, the basic tax rate of 20 percent, which currently applies if you earn up to £46,350 a year, has been extended.
The government planned to make these increases in 2020-21 but decided to put them in place a year earlier. Chancellor Philip Hammond explained that the decision was a result of “the improvements we have delivered in the public finances.”On the downside, the income tax thresholds will stay the same in 2020-21. The next revisions are planned for 2021-22 when the thresholds will increase in line with inflation.
The new rates apply only in England, Wales and Northern Ireland. Scotland sets its own income tax rates and thresholds.We’ll deal with Scotland’s income tax rates for 2019-20 in a minute. First, let’s have a look at how your tax bill will change from 6 April 2019 if you live in another part of the UK.
The current tax brackets in England, Wales and Northern Ireland are:[table id=27 /]So how does this compare with the income tax rates that’ll kick in on 6 April 2019?Well:
All in all, the government reckons 32 million people will have a lower tax bill as a result of these changes. Pretty good right?Let’s crunch some numbers so you can get a better idea.
Let’s say you’re a sole trader. Your total income after deducting allowable expenses is £20,000 a yearHere’s how much tax you’d pay under the current income tax rules and how much you’ll pay in 2019-20.Under the current thresholds:
Under the income tax thresholds for 2019-20:
This means you’ll be getting an extra £130 a year in your pocket in 2019-20.
Now, let’s say your income after deducting allowable expenses is £50,000.Under the current income tax rates:
Under the income tax thresholds for 2019-20:
That’s £860 less than you’d pay this year.
As we explained above, Scotland’s tax rates and thresholds are slightly different to the rest of the UK.
The main changes to the Scottish income tax rates in 2019-20 are:
The main difference between Scotland’s income tax rates and those in the rest of the UK is that Scotland has five tax bands to the rest of the UK’s three.
The end result of this difference is that higher-income earners pay more tax in Scotland than they do in the rest of the UK. By contrast, Scottish lower-income earners pay less tax.
In our first example above, an income of £20,000 a year in 2019-20 would result in a tax bill of £1,500 if you live in England, Wales or Northern Ireland.By contrast, under the Scottish tax system you’d pay tax as follows:
This is £20.49 a year less tax than you’d pay in England, Wales or Northern Ireland.
In our second example, an income of £50,000 a year would result in a tax liability of £7,500 in 2019-20.By contrast, in Scotland:
That’s £1544.07 more than you’d pay in England, Wales or Northern Ireland.
Like income tax rates, National Insurance thresholds are also changing as from 6 April 2019. And this will affect the way you calculate your tax return.Here’s a look at the new National Insurance thresholds and rates for employees and the self-employed and how they compare with 2018-19 rates.
[table id=50 /]If you’re a higher-income earner, the widening of the National Insurance threshold means you’ll pay more NI in 2019-20. And this might eat up some of the savings you’ll make on income tax.Case in point, if you have a yearly salary of £50,000, you’ll pay £4,964.16. This is a £336.64 increase over your 2018-19 tax bill.That said, seeing as you’ll save £860 on income tax, you’ll still be better off.
[table id=51 /]The government recently announced it has decided to scrap plans to abolish Class 2 National Insurance. Instead, 2019-20 will see it rise by 5p a week.The government has also adjusted the Class 4 National Insurance thresholds to bring them in line with the new income tax bands.
Revised income tax and National Insurance rates aside, the government has also increased the Annual Investment Allowance from £200,000 to £1 million.The Annual Investment Allowance allows you to deduct from your income the full value of plant and machinery you use in your business. Which means you pay less tax.The increase is temporary. It’ll only last for two years, after which the Annual Investment Allowance will go back down to £200,000. So if you were thinking of making a big investment to help your business grow, now’s the time to do it.
And there you have it. That’s a rundown of the most important income tax changes you should know about as we approach the 2019-20 tax year.
Here’s to a successful 2019. One in which you reach new heights and, hopefully, pay less tax.