The new tax year has now nearly completed its first week. David Pointer from the Open Tax Consultancy highlights some key changes. Over to David:
For many people this year will be harder than most with a number of key changes to the tax, national insurance and benefits system all of which are designed to cut the deficit.
Tax Changes
Whilst the main rate of income tax remains unchanged at 20% the most notable changes will perhaps be the alterations to the thresholds at which income at the basic rate and higher rate begins to bite. The Institute for Fiscal Studies (IFS) suggests that 500,000 people will stop paying income tax altogether because the personal tax allowance has risen to £7,475, those with income below this should be better off. On the flip side the IFS also suggests that as many as 750,000 people will become higher rate taxpayers, this is because the income threshold for higher rate tax has dropped from £37,401 to £35,001.
Better news is in store for businesses with the lower rate of corporation tax being reduced from 21% to 20% and the main rate reducing from 28% to 26%.
National Insurance
National Insurance is on the rise too, employees will see a rate increase from 11% to 12%.
Pension contributions
The third change in as many years results in a new reduced limits applying to pension contributions, with the annual allowance now at £50,000 instead of the previous limit of £255,000.
Better news is the fact that contributions can attract tax relief at as much as 50% up to the new £50,000 limit with the possibility to carry forward unused relief from the previous three tax years.
The tax free Individual Savings Account limit has risen to £10,680 from £10,200 and half can be saved in cash. In the future, the limit will rise each April in line with the RPI measure of inflation. Following from the success of ISA’s Junior ISAs will be available from the autumn to all UK resident children aged under 18 who do not have a Child Trust Fund.
David: “this is the second material phase of tax increases that people will have to take on board this year. The VAT increase in January appears to have had a noticeable effect on spending with people tightening their belt buckles. With take home pay now reducing for many it will be interesting to see how this second set of changes goes down”. He also added “So the New Year may well see a more forced set of resolutions with lighter pockets rather than willpower driving economies across the UK”
Time will tell, let’s hope we and the country will be better for it. We will certainly be thinner, but wiser I am not so sure!
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