Moving on to the United Kingdom, their tax system includes many key features that support substantive equity, like deeply limiting the money someone makes and pays in. Included in these are the personal allowance, income tax thresholds and National Insurance (NI) contributions. As the government prepares for upcoming budget announcements, discussions surrounding potential changes to these financial structures are gaining momentum.
The tax-free personal allowance is currently £12,570, which means that individuals can earn up to this amount without paying any income tax. Income exceeding this threshold is taxed within multiple tax brackets. The current basic rate of income tax, currently at 20%, is levied on all income earned between £12,571 and £50,270 a year. Those with an income between £50,271 and £125,140 currently pay the higher rate of 40%. A marginal tax rate of 45% applies to those with income exceeding £125,140.
At the moment, the higher-rate tax threshold is frozen at £50,270. The NI threshold and the tax-free personal allowance are frozen until 2028. This stops future income increases from being able to be sheltered from the tax. Employers currently pay National Insurance at a rate of 15% on all wages over £5,000 for their employees. In the last few years, the employment allowance has been broadened. Employers are now able to reclaim £10,500 from their National Insurance contributions, an increase from the former £5,000.
National Insurance contributions are another area where major changes have been made in recent years. In 2024, the starting rate for NI for employees decreased twice: first from 12% to 10%, and then again to 8%. Workers begin paying National Insurance as soon as they turn 16. They have to be paid over £242 a week, or self-employed income over £12,570 per year.
People lose £1 of their tax-free personal allowance for every £2 that their income is over £100,000. We believe this is a significant consideration worth emphasizing. As a result, those earning over £125,140 forfeited their personal allowance altogether. For all employees, the NI rate on income and profits above £50,270 is currently 2%.
Overall, self-employed people face a more complex tax picture when it comes to NI contributions. The rate on all earnings over the income tax personal allowance (£12,570) and up to £50,270 has decreased from 9% to 6%. This big change provides substantial fiscal relief to this group.
As the government approaches its budgetary discussions, analysts and taxpayers alike are keenly observing potential reforms to these tax structures. Rumours are flying about potential changes to the new personal allowance and income tax rates. Even incremental expansions in access would make a profound difference in people’s ability to plan financially and thrive economically.
