While everyone will have heard about the increases in NI coming up, there have been other changes which may mean you pay less tax and NI next year.
All taxpayers will benefit from an increased level of Personal Allowance (the amount you get tax free) which increases from £6475 to £7475 which immediately puts another £200pa (£1000 X 20%) in your pocket. That is the good news, the bad news is that the amount you can earn as a basic rate taxpayer is reducing from £37,400 to £35,000 so you will pay an additional £480 tax as £2,400 goes from basic to higher rate tax bands. The gainers are lower income taxpayers and many of the governments “middle Britain” supporters will be losers.
The impact on NI is more involved but the same principles hold: a greater allowance before NI is payable; but then paying a higher percentage. The details depend on your employment status:
Employed
The starting point for paying NI increased from £110 to £139 per week (£5720, 7228pa) saving £165pa but the rate you then pay is increasing by 1% to 12%, so this will have been taken back if you earn more than £2k per month. The point at which you stop paying 12% is reducing by £1400pa to £42.4k but instead of paying 1% on everything thereafter this is increasing to 2%.
Employers NI is similarly increasing by 1% from 12.8% to 13.8%, so not only do staff end up with less in their pockets but employers too.
Self employed
The weekly Class 2 “stamp” is increasing a small amount from £2.40 to £2.50 per week but of more interest is the Class 4 NI contribution on profits. The level at which Class 4 NI starts being paid increases from £5715 to £7225 and thereafter the rate increases from 8% to 9%. In a similar way to the employed the upper level is reduced to £42.4k but then excess profits are charged at 2% (an increase of 1%)
In summary there are small gains for low earners but almost everyone else will pay more. For HMRC tables click here: TAX NI. Only the main rates and allowances affecting most taxpayers are shown here, but for specific advice relating to your circumstances seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call. Alastair Wood, AW Accounting, Gravesend – Accountants who “speak your language”