Accessibility Links

What do the new tax changes mean for you?

Posted by: Suzi Parkinson
06/06/2016

The start of the new tax year brought a whole host of changes that have consequences for your finances. With so much happening it can be quite difficult to keep up with it all. Here are the changes you need to be aware of to make it easier to digest.

Income Tax

The tax-free personal allowance has increased! This is the amount you are allowed to earn before tax becomes payable. It has risen from £10,600 to £11,000 and will rise again to £11,500 next year. For those of you in the higher-rate tax bracket the threshold to pay 40% tax has also risen. You now have to earn £43,000 as opposed to the 2015/16 amount of £42,385 and the Government has committed to raising it even further to £50,000 by 2020. Just think of this increase as a pay rise!

Savings

Individuals with a taxable income of between £17,000 and £43,000 a year are now eligible for a £1,000 tax-free allowance, thanks to the launch of the personal savings allowance. This means you can earn up to £1,000 per year in savings interest without paying a single penny in tax! Higher-rate tax payers with a taxable income of between £43,001 and £150,000 a year are also eligible; however the amount you can earn tax-free will be capped at £500. Why not put that extra money you have earned, thanks to the higher income tax threshold, into a savings account and reap the benefits of the tax-free allowance.

Wages

As of April 2016, the new National Living Wage (NLW) of £7.20 was made law for employees aged 25 and over. This is an improvement of 50p per hour in comparison to the National Minimum Wage (NMW) of £6.70 which employees aged 21-24 are entitled to. It may not sound like much, but if you were to work a standard 37.5 hour week at the NMW, your monthly salary would be roughly £1005. If you work the same week but are receiving the new NLW your monthly earnings will equate to around £1,080 – that’s an extra £75 for doing the exact same job. While the NLW changes every April alongside the new tax year, the NMW changes every October. For those of you who are under 25, here’s what you can expect to earn per hour:

(Source: This is Money)

Childcare

From early 2017, the ‘childcare voucher’ system will be replaced with a tax-free childcare system which will see working parents get up to £2,000 a year per child to cover childcare costs. The childcare vouchers would be purchased from the parent’s employer which would enable each parent to pay for childcare worth up to £243 a month. Each £243 voucher currently costs £165.24 for standard-rate tax payers. Higher-rate tax payers are eligible for vouchers worth £124, which costs the parent £71.92. As long as your employer offers it, both parents can apply for the ‘childcare voucher’ scheme. Amongst these changes within childcare, maternity pay remains unchanged. (Although not strictly tax related, it is definitely worth knowing.) It is also worth noting that once the new system comes into play in 2017, you will not be able to sign up to both schemes. You do not have to switch over to the new scheme when it begins if you are already on the old system; however once you move across to the new tax-free scheme you will not be able to switch back.

 

 

Add new comment
*
*
*