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Government Reversal of the 45p Additional Rate: Tax Implications Explained
General readers following UK tax policy developments and individuals affected by the Additional Rate of Income Tax.
The Government’s reversal of the proposal to abolish the 45% Additional Rate of Income Tax and confirmation that it remains in place for the 2023–24 tax year.
The Chancellor, Kwasi Kwarteng has announced plans to scrap the proposed removal of the 45p tax rate from April 2023. The proposed removal of the 45p Rate was first announced as part of the Growth Plan measures on 23 September 2022. However, the change sparked a backlash that has sent shockwaves through the financial markets and even saw many members of the Conservative party actively campaigning against the move.
The Prime Minister and the Chancellor initially refused to backdown on the measure but eventually accepted that they were left with little choice but to U-turn on their proposal. The announcement of the U-turn was made earlier this week on the second day of the Conservative Party conference in Birmingham.
Background to the Announcement
The Government had previously announced plans to abolish the 45% Additional Rate of Income Tax.
The proposal applied to income over £150,000.
The announcement formed part of wider fiscal measures and generated significant public and market reaction.
The Reversal
Following criticism and market response, the Government confirmed that the 45% Additional Rate would remain.
The rate continues to apply in the 2023–24 tax year.
The proposed change from April 2023 was therefore withdrawn.
What This Means
- The 45% Additional Rate remains in force.
- The threshold of £150,000 continues to apply.
- The change does not proceed from April 2023.
The income tax structure for higher earners therefore remains unchanged for the 2023–24 tax year.
Context
The announcement was made during a period of political and economic discussion, including commentary at party conference and public statements.
The reversal confirmed that the Additional Rate structure would remain as previously legislated.
Real-World Impact
- Individuals earning over £150,000 continue to be subject to the 45% Additional Rate.
- The income tax bands for 2023–24 remain unchanged following the reversal.
- Planning assumptions based on abolition of the 45% rate do not apply.
Key Points
- The 45% Additional Rate was proposed to be abolished.
- The proposal was reversed.
- The rate remains in place for the 2023–24 tax year.
Strategic Tax Planning Following the Rate Reversal
Changes to the 45p additional rate of Income Tax can significantly affect higher earners, dividend planning, and overall remuneration strategies. Rapid policy reversals create uncertainty around forecasting liabilities and structuring income efficiently. Seeking timely tax planning services London helps you assess how rate decisions influence your personal or corporate tax position. Cigma Accounting, advising clients from our Farringdon and supporting individuals in Moorgate and Barbican, provides clear analysis to help you respond confidently to legislative change.
Where income exceeds additional rate thresholds, proactive structuring of dividends, bonuses, and pension contributions becomes increasingly important. Working with an experienced tax accountant in London allows you to review exposure before year-end rather than reacting after filing deadlines. Cigma Accounting offers practical, forward-looking advice with physical offices across London, helping you protect income and maintain compliance amid shifting tax policy.
AFFECTED BY CHANGES TO THE ADDITIONAL 45P TAX RATE?
Shifts in higher and additional rate income tax can materially impact dividends, bonuses, and other earnings. Reviewing your income structure in light of policy reversals can help you manage exposure and plan more efficiently.
Trusted guidance from London-based accountants, focused on accuracy, clarity, and compliance.
