Income Tax Changes From April 2023 - What You Need To Know

Income tax thresholds and rates are subjects of great importance when discussing tax changes, and they play a significant role in the tax planning process. As of April 2023, the United Kingdom introduced significant changes to its income tax system. These changes affect millions of taxpayers and have far-reaching implications for individuals, families, and businesses across the country.


This comprehensive guide will delve into the key income tax changes for the April 2023 tax bill, their impact, and what you need to know to navigate this new tax landscape.


The Key Changes

Income Tax Rates and Bands

One of the most significant changes coming into effect from April 2023 is the revision of income tax bands and rates. These changes aim to simplify the tax system while ensuring that the government continues to receive adequate revenue. The new income tax bands and rates are as follows:


Basic Rate: The basic rate remains at 20% for incomes between £12,571 and £50,270.


Higher Rate: The higher rate will continue to be 40% for incomes between £50,271 and £150,000.


Additional Rate: The additional rate also remains unchanged at 45% for incomes exceeding £150,000.


Personal Allowance

The personal allowance, the amount of income you can earn before you start paying income tax, will see an increase. From April 2023, the personal allowance will rise to £12,571, up from the previous tax year's £12,570. This means that individuals can earn an additional £1 without incurring income tax.


Higher Rate Income Tax Thresholds

The higher rate threshold, the point at which you start paying the higher rate of income tax, will also be adjusted. In April 2023, this additional rate threshold will increase to £50,270 from the previous £50,270. This change ensures that more income remains subject to the basic rate of tax.


National Insurance Contributions (NICs)

National Insurance Contributions will also be affected by the income tax changes. The earnings threshold at which you start paying NICs will be aligned with the higher rate threshold. From April 2023, NICs will commence at the same income level as the higher rate threshold, which is £50,270. This change means that an individual's annual earnings below this threshold will not pay NICs.


Dividend Tax

For those who receive income from dividends, the dividend tax allowances and rates will be affected. The dividend allowance will remain at £2,000, meaning you can earn up to this amount in dividends without paying tax. Beyond this allowance, the following rates will apply:


  • Basic Rate Taxpayers: 7.5%
  • Higher Rate Taxpayers: 32.5%
  • Additional Rate Taxpayers: 38.1%


Capital Gains Tax

Capital Gains Tax (CGT) is levied on the profit from the sale of assets. From April 2023, the annual exempt amount for CGT will increase to £14,000 for individuals and £28,000 for couples. This means that you can make a profit of up to these amounts from the sale of assets without incurring CGT.


Marriage Allowance

Marriage Allowance allows married couples and civil partners to transfer a portion of their personal allowance to their spouse or partner if one of them doesn't use all of their personal allowance. From April 2023, this allowance will remain at £1,260.


The Impact

These income tax changes will have a wide-ranging impact on various segments of the population. Here's how different groups are likely to be affected:


Basic Rate Taxpayers

Basic rate taxpayers are individuals with incomes below £50,270. The changes in income tax bands and rates won't directly affect them. They will continue to pay income tax bills at the basic rate of 20%. However, the increase in the personal allowance means that they can earn more income without paying any tax, which can provide some relief.


Higher Rate Taxpayers

Higher-rate taxpayers, with incomes between £50,271 and £150,000, will also see no change in their tax rate. They will continue to pay income tax bills at the rate of 40%. However, the alignment of the higher rate threshold with the NICs threshold could result in some savings for this group.


Additional Rate Taxpayers

Individuals earning over £150,000 fall into the additional rate taxpayer category. They will still be subject to the 45% income tax rate. The increase in the personal allowance won't significantly impact this group, but they will benefit from the higher annual exempt amount for CGT.


Dividend and Investment Income Recipients

Those who receive income from dividends and investments will be affected by the changes in dividend tax rates and CGT. Basic tax band and rate taxpayers receiving dividends will see no change in their tax rate. However, payers in the higher top tax bracket and top tax band will experience a slight increase in their tax liability.


Low-Income Earners

The increase in the personal allowance is beneficial for low-income earners, as it allows them to keep more of their earnings. This change can help those struggling to make ends meet.


Couples and Families

Marriage Allowance remains unchanged, providing couples and civil partners with the option to transfer a portion of their personal allowance to reduce their overall tax liability.


Property Investors and Asset Sellers

The higher annual exempt amount for CGT can be advantageous for property investors and individuals selling assets. It allows them to make a higher profit before incurring capital gains tax.


What You Need to Know

As these income tax changes come into effect from April 2023, here are some important considerations:


Update Your Tax Code

Ensure that your tax code is updated to reflect the new income tax bands and rates. This will help your employer calculate the correct amount of tax to deduct from your earnings.


Use Tax-Efficient Investment Strategies

If you receive dividend income or plan to sell assets subject to CGT, consider using more tax-efficient investment strategies. Consult with a financial advisor to explore options like tax-efficient investments or tax-deferred accounts.


Review Your Financial Goals

Take the opportunity to review your financial goals and budget in light of these changes. The increase in the personal allowance can impact your disposable income and cost of living more, so adjust your financial plan accordingly.


Consider Pension Contributions

For higher earners, making pension contributions can be a much more tax-efficient way to reduce your taxable income. Contributions made within the annual allowance can lead to tax relief, potentially reducing your overall tax liability.


Seek Professional Advice

Tax laws are complex, and individual personal circumstances vary. Finding an accountant to ensure you're making informed financial decisions and optimising your tax position is advisable.


Stay Informed

Tax rules and regulations can change over time, so it's essential to stay informed about updates and potential future changes that may affect your financial situation.


Cost of Living and Tax Changes

It's important to note that these income tax changes are occurring in the context of a broader economic landscape. The cost of living, including essential expenses such as energy bills and council tax, has been a significant concern for many households. While the income tax changes may provide some relief, the overall cost of living remains a critical factor in people's financial well-being.


Energy Bills and Council Tax Rises

Energy bills and council tax are essential expenditures that impact every household. Rising energy costs and council tax bills can put additional financial pressure on individuals and families. It's essential to budget for these expenses and explore options for managing them effectively.


National Living Wage and Minimum Wage

The National Living Wage and the Minimum Wage are critical factors in addressing the living crisis. These rates determine the minimum income that workers should receive, and any changes in these rates can have a direct impact on individuals' earnings and their ability to cover their expenses.


Means-Tested Benefits

For those who may be struggling financially, means-tested benefits such as Universal Credit and pension credits can provide essential support. It's important to understand the eligibility criteria and how income tax thresholds and rates changes may affect your eligibility for these benefits.


State Pension and State Pension Age

Once you have reached state pension age, it is a vital source of income for retirees. Understanding the state pension age and the impact of income tax changes on your pension income is crucial for retirement planning.


Disability Benefits

Disability benefits provide financial support to individuals with disabilities. Changes in tax rules and thresholds can affect the amount of support available to those who rely on these benefits.


Inheritance Tax, Lifetime Allowance, and Pension Savings

Inheritance tax and lifetime allowance are important considerations for individuals planning their financial legacies. Changes in tax rules can impact the amount of tax owed on inheritances and the limits on pension savings.


Stay Up To Date With The Changing Tax Word: Get In Contact Today!

The income tax changes coming into effect in April 2023 represent a significant shift in the UK's tax landscape. Understanding these changes, their impact on your personal circumstances, and the broader economic context is essential for effective financial planning.


Whether you are a basic rate taxpayer, a higher rate taxpayer, or fall into a different category, staying informed, seeking professional advice, and making informed financial decisions are key to navigating these changes successfully. Additionally, considering the broader cost of living, means-tested benefits, and other financial factors is essential for maintaining financial stability in the face of tax changes and economic challenges.


As the tax year progresses and new information becomes available, it's important to stay updated and adapt your financial plans accordingly. Tax rules can evolve, and staying informed ensures that you make the most of your financial resources and manage your tax liability effectively.


Contact 10.CA today to find out more!

The hidden savings tax trap and why changes to ISAs make it harder to put money away

By Charlie Flockhart • June 4, 2026
Do you know what your Personal Savings Allowance is? While most taxpayers in the UK will know the thresholds for Income Tax, a worrying few know the way in which personal savings can be subject to tax. With ISAs set for a significant overhaul, understanding the less tax-efficient saving options will soon be more important. How much tax do you pay on your savings? While your savings are not taxed, any interest generated by those savings could be subject to tax if it exceeds your Personal Savings Allowance. Depending on the rate of Income Tax you pay, your Personal Savings Allowance will differ. The thresholds are: £1,000 for Basic-rate taxpayers £500 for Higher-rate taxpayers £0 for Additional-rate taxpayers ISAs remain the more tax-efficient saving strategy as the interest generated from them is tax-free. It is therefore most effective to utilise the full £20,000 saving limit for an ISA as early in the tax year as possible to benefit the most from the accumulation of interest. How should tax on savings be managed? The main issue is that tax on savings is often overlooked, resulting in HMRC taking action for underpaid taxes. This will often manifest in a charge through PAYE, as employees are more likely to overlook this obligation. Those filing Self Assessment tax returns should already be declaring interest earned, so any compliance issue in that group points to a wider problem with handling tax obligations. When attempting to make the most of saving strategies, it is best to seek professional financial advice. This will be more important if the saving limit for Cash ISAs falls to £12,000 for under-65s in 2027 as proposed, leaving younger savers to have to find new ways to grow their wealth. Our professional team can help you to determine an effective saving strategy that suits your financial goals while helping you to be mindful of the tax obligations that you may face. We do not want to see anyone caught off-guard by an unexpected tax bill and understanding your exposure is vital for preventing this. Get in touch with our team to regain confidence in your saving strategy.

Salary sacrifice cap and the squeezed middle

By Charlie Flockhart • June 4, 2026
The £2,000 cap on National Insurance (NI) free salary sacrifice pension contributions was sold as a tax on high earners but, if you look closer, the opposite is true. In fact, the people most exposed are middle-income savers and the small businesses that employ them. For the so-called “squeezed middle”, it is yet another quiet hit to take. Why do the rules adversely affect middle-earners? From April 2029, salary sacrifice tax relief will continue to be available, but only the first £2,000 of employee pension contributions each year will be free of NI. Anything above that becomes liable to NI for both the employee and the employer and the full adverse effect is clear once the different rates of NI are accounted for. If a person’s total pension contributions are modest, say up to six per cent, those individuals who earn between £35,000 and £50,270 will pay an eight per cent NI charge on pension contributions above the £2,000 cap. By contrast, an individual whose earnings already exceed the upper earnings limit of £50,270 will pay employee NI at just two per cent on those same excess contributions. This imbalance in the NI system means that those on lower incomes could pay four times the NI rate on their pension savings in excess of the new threshold than the highest earners pay. How does this change affect employers’ National Insurance bills? Many employers currently share their own NI savings by topping up staff pensions, but a new 15 per cent employer NI charge on contributions above the cap makes those top-ups unaffordable for a lot of firms. As a result, some employees could see the overall efficiency of their pension saving above the cap fall by as much as 23 per cent once lost top-ups are counted. Even those who stay below the threshold are not safe, as the Office for Budget Responsibility (OBR) estimates that around 76 per cent of higher employer costs are eventually passed back to staff through weaker pay rises and trimmed benefits. Don’t wait for the change The good news is that there is time to plan, as the rules do not take effect until April 2029, which leaves room to act while current allowances still apply. If you are a middle earner, this is exactly the moment to review your pension strategy, weigh up complementary options such as ISAs and make sure your retirement plans stay on track. To talk through what the salary sacrifice cap means for you, please get in touch with our team.

Government summer savings spree adds complexity to VAT for hospitality and tourism

By Charlie Flockhart • June 4, 2026
When Rachel Reeves announced a temporary cut in VAT from 20 per cent to five per cent for family attractions and children’s dining over the summer holidays, the hospitality and leisure sectors broadly welcomed it. The scheme runs from 25 June to 1 September and is funded, according to the Treasury, by closing a tax loophole used by oil and gas companies with overseas operations. On the surface, this looks like good news worth welcoming. However, for the businesses applying the new rules, the reality of delivering the rate cut is more complicated than the headlines suggest. The rules shift from one service to the next How the cut works depends heavily on what is being sold. Admission tickets to amusement parks, water parks, zoos, museums, soft play and similar venues qualify, as do children’s and family tickets to cinemas, theatres and concerts. However, pay-per-ride attractions do not. Children’s meals only qualify when served from a clearly marketed, separate children’s menu. A smaller portion of an adult dish does not count, nor does a discounted adult meal or a takeaway. Season tickets and annual passes are generally excluded too. The result is that many businesses will apply two VAT rates at once on the same bill. Tills, accounting systems and front-of-house staff all need to handle that from day one, then revert again from 1 September. This adds an additional layer of complexity to VAT reporting that businesses need to consider right away. Encouraged, but not required The Government has urged businesses to pass the saving on to customers and the Competition and Markets Authority has new anti-profiteering powers to prevent unethical activity. Even so, there is no legal obligation to lower prices at the till and many businesses will weigh up rebuilding margin, reinvesting and matching competitors before deciding exactly what savings to offer to consumers. Given the wider cost challenges that businesses currently face, the scheme may not deliver the lift at the till that many customers are expecting. Right idea, wrong season? There is also a question of timing. The scheme targets the period when families already spend most on days out and when operators are near capacity. A cut would arguably do more for businesses in the quieter autumn and winter months. As designed, it looks more like household support than business stimulus. Any support for the sector is welcome, provided businesses seek the expert guidance required to manage obligations and make the most of any new opportunities. If you would like to discuss what the temporary VAT cut means for your business, please get in touch with our team.