Tax bands in the UK are set to be altered on April 5 when it’s predicted that over 700,000 people will be liable to pay higher levels of income tax. At the same time, the point at which you have to pay income tax at all has risen by £1,000. It’s surprising to see a Conservative government hitting the better off and reducing the burden of the poor, but then maybe this is ‘coalition politics’ at work.
Read on for a breakdown of the new tax bands…
Those who don’t have to pay:
There are a number of people who have a little thing called a ‘personal allowance’ which basically means they don’t have to pay any income tax at all. Don’t be envious, these people don’t earn much. However, thanks to the new changes, they may be up to a £1,000 richer than they once were.
Old rate: The personal allowance is currently applicable to those earning up to £6475.
New rate: The personal allowance will be applicable to those earning up to £7475 from April 5.
For those earning above the income tax ‘exemption’ rate, they will have to pay the 20% tax rate.
Those affected by the change in higher rate tax:
The rate at which you have to pay higher rate tax will fall by £2,000, pulling over 700,000 more people into bearing the weightier tax burden.
Old rate: Higher rate income tax is currently applicable to those earning £37,401 or more
New rate: From April 5, people earning £35,001 or more will have to pay the higher rate.
The higher tax rate means that you have to pay 40% tax on earnings. The 50% rate comes into play if you’re earning £150,000 per annum. It’s going to be a real pain for those who just qualify for the higher tax rate. That’s why experts in the accountancy profession believe that attempts will be made to avoid falling into the higher band by increasing contribution to pensions and other benefits.
Other issues to keep in mind
Child Tax Credits are also set to change from April 6. Families earning more than £40,000 will have their credit allotment gradually reduced at a rate of 41%. At the moment, claimants are getting full Child Tax Credits until their income reaches the second income threshold – for most people this is an annual income of £50,000.
According to the Institute of Fiscal Studies (IFS), the average household will be worse off by £200-a-year as a result of tax rises and benefit cuts from April 5. The Government is also increasing the main rate at which National Insurance is paid at the beginning of next year.
James Browne, senior research economist at the IFS, warns the number of higher rate tax payers could increase if the Liberal Deomcrats stay true to their manifesto promise of raising the tax free allowance to £10,000.
“While taking 500,000 out of tax altogether, the way that the government has increased the personal allowance to ensure that higher rate taxpayers don’t gain will increase the number of higher rate taxpayers by 750,000. We calculate that a further 850,000 would be brought into this higher rate bracket by 2014-15 if the government reaches its ambition of a £10,000 allowance in the same way.”
A Treasury spokesman said it was a matter of fairness:
“Tax credits will be targeted at those who need them most. At the same time, personal tax changes will remove nearly a million of the lowest earners out of tax altogether and around 23 million basic rate taxpayers will gain by £170 per annum.”