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Will you be hit by ‘worse-off Wednesday’?

Letters spelling out 'tax' with hand pointing up

Today’s such a significant day that it’s been named twice – ‘worse-off Wednesday’ and ‘Black Wednesday’. Whatever way you look at it, there are some key tax changes coming into force as we speak…

According to a study by HSBC, eight out of ten people are unaware of the new tax allowances that are taking place today – and, as a consequence, are unlikely to have any idea how they’ll be affected by the start of the new financial year.

Let’s face it – as I have previously complained – tax is taxing, whatever the government might try to tell us on the telly. So it’s no wonder many people feel confused.

What’s more, measures that will help some people are likely to prove unwelcome for others – so will you be better or worse off this tax year?

1. Changes to the personal allowance and tax bands

As of today, your personal allowance – i.e., the amount you can earn each year tax-free – will increase from £6,475 to £7,475. According to the government this will benefit 23 million people, and means some people will be taken out of tax altogether.

Ultimately, the intention is to raise the personal allowance to £10,000 during the course of this Parliament. This was a key Liberal Democrat pledge during the general election campaign.

This year, though, the move to raise the personal allowance has been designed so that it benefits only lower earners. The threshold at which you may have to start paying higher rate tax has come down from £37,400 to £35,000 (excluding your personal allowance) – according to estimates, this could see 750,000 more people paying 40% tax on some of their income.

For those aged 65 and over, the personal allowance will rise from £9,490 to £9,940. For those aged 75 plus, it will go up from £9,640 to £10,090.

2. Increased Isa allowances

This year you’ll be able to save more money tax-free in cash Isas and stocks and shares Isas.

The annual Isa allowance has increased from £10,200 (of which £5,100 could be saved in cash) to £10,680. You’ll be eligible to put £5,340 of this into a cash Isa during the financial year 2011/12, or put the full amount into a stocks and shares Isa if you wish.

3. National Insurance contributions up

In the 2010/11 tax year, most people earning £110 per week or less paid no National Insurance (NI) contributions – but in now this threshold will be raised to £139.

And those people earning between £139 and £817 per week will see their NI contributions increase from 11% to 12%.

If you’re self employed you’ll also have to pay more NI this tax year – your contributions are rising from 8% to 9%. Meanwhile, the upper level for additional contributions increases from 1% to 2%, which will affect higher earners.

4. Pension changes

The full basic state pension will rise this tax year from £97.65 per week to £102.15.

The government is also planning to introduce major changes to the state pension system during the course of its term, with the intention of simplifying it. It’s likely that a flat-rate state pension will be introduced and the means-tested pension credit benefit abolished – but this won’t happen until later in this Parliament.

5. Inheritance Tax frozen

There’ll be no changes to the Inheritance Tax (IHT) rules this year, with the threshold frozen at £325,000 until 2014-15.

However, George Osborne explained in his Budget speech last month that from 2012/13 people who leave 10% of their estates to charity will be eligible for a discounted IHT rate.

6. No changes to Capital Gains Tax

There will be no further changes to Capital Gains Tax (CGT) this year. In the government’s June 2010 Emergency Budget CGT was set at 28% for 40% and 50% taxpayers, and at 18% for basic-rate taxpayers.

What do you think of the changes?

So does my overview give you a better understanding of how your take-home pay will be affected this year? If you’re still confused I’d recommend visiting Listen To Tax Man – a smart website that works out how much money you’ll actually see out of your salary each month.

Do you think the government’s decisions are right or are they just going to leave most of us worse off?

Comments
Profile photo of una farrell media manager cccs
Member

While some will be better off – many household budgets (already under pressure from wage freezes, high inflation etc) – will buckle under the strain.

Profile photo of dean
Member

I am not sure people/families will “buckle under the strain”, how does that happen exactly? Do all their bones just give way and they turn into a big pile of skin and hair? 🙂

I don’t know, maybe I am not sympathetic to people struggling with money as it is something I have done all my life.

You cut your cloth to suit your needs, it’s really quite simple. Yes more money will be going to government, but we all accept that they have to do something with the deficit and increasing taxes on big business will actually cause more job losses.

Strive to do better at work, work to achieve more, don’t stay stagnant, be dynamic, don’t expect things to be handed to you on a plate etc etc etc. These are all things you can do to ensure that your wages exponentially increase.

People WILL find a way, with the media using phrases like ‘worse-off Wednesday’ and ‘Black Wednesday’ then they are just using fear to create a non-story.

If you end up being worse off, do something about it, find a new job, start a new company, whatever. We are British, we are ingenious, we show our strongest side when we are at our lowest ebb, which I personally think will prevail once all this dies down.

Member
Mike says:
6 April 2011

What makes Dean think that it will all die down?
History teaches us very clearly that when the markets mess up big-time as in the 30s, the only answer is to prime the pumps (New Deal etc.) Cutting just makes things worse.
The very best hope, under current policies, is that we soldier on as Japan did, having had its banking crisis 15 years early, with near to zero growth. Then Japan had the benefit of all its public spending being internal, as it had no fantasies about being the world’s policeman and getting involved in conflicts around the globe.

Profile photo of richard
Member

Dean – the problem is there ARE no jobs – So that as people are sacked from their public service jobs there are less and less jobs to find – Remember ! million youths are unemployed – 500.000 sacked by the public service because the “Government” says so – Old people expected (forced) to work after 65.. The number of jobs is decreasing

Have you actually really tried to get a decent job at over 55?? Or are you simply saying it?? Let me tell you it is very very difficult

Member
geordie says:
8 April 2011

cut your suit, nearly eaten mine,as ex agency worker, working for council was laid off august 2010 after 3 years .i pay all my bills and end up getting food parcels from my church ,organised with advice centre. seems we stopped bashing banks after bailing them out,and started bashing the lower end and using them as a cash pot.Dont forget (growth) going up (employment) going down under labour,benefit claims going though roof under con/dems, governments get money to treasury by people paying taxes,maybe we should see what would happen by saying, no bank is to big to fail,by not putting tax payers money into them,it might get to banks not taking risks as the whole world has found out.YES we are (british) stiff upper lip and all that rubbish ,let not be naive it big gamble,thinking it will all be alright but this is all about,a tax give away,in the last budget before election,i am a labour supporter, but i do hope for country it works,but i feel poverty will grow and the new idea of BIG SOCIETY will be the new victorian workhouses

Profile photo of gdavidbeck
Member

Note that the additional personal allowance for 65 and older applies only to income below £24,000. Above this amount the additional allowance is reduced by £1 for each £2 of income (not just earned income so pensions count). This means that at about £30k the additional allowance is £0. The normal personal allowance amount is not affected.

Member
Averil says:
6 April 2011

Why is there no national insurance on income above £817 per week. If I understand correctly for those earning over this amount they may pay 40% tax but don’t pay any national insurance whereas those earning between £139 – £817 they pay 20% plus 12% National Insurance which equals 32% deductions. In other words people on higher incomes don’t really pay that much more than lower earners despite the headline tax levels. Simply putting national insurance on all income as well as tax on all income (above the lower limit) would bring in a lot more money from the higher earners. Or am I missing something?

Profile photo of richard
Member

I think you are missing something

National Insurance was supposed to be the payment towards all forms of ‘sickness’ benefit from a day off sick through hospital treatment to state pensions – So should have no bearing on income. It was not really a “tax” but a standard duty.

Rather like road fund license – a Rolls Royce costs the same as a Mini because the wear on the road is the same.

The cost of your benefit is not dependent on income only on the individual’s use of the benefit.

Member
Lynne says:
9 April 2011

Worse off Wednesday, what a joke we get ripped off all the time! Why tell us what a state the country is in and then give away billions to other countries? Why raise the age of retirement? Keeping younger fitter people out of the work force, purely because there isn’t any jobs for them. They are killing our Country squeezing the very life out of it.

Member
Charlie says:
11 April 2011

All the comments and the actions taken by our government are in my opinion tinkering with the problem. I think there is one major decision that we as British citizens should be raising and discussing in a lot more detail. First may I say I am 76 years old, are not and have never been a pacifist and totally admire and believe we must spend more on conventional armed forces. I am not a member of any political party. But can somebody please explain to me why when the USA have hundreds of nuclear weapons, France I think have more than we have so NATO are equipped with these weapons. Why do we insist on spending billions of pounds on an individual nuclear attack capability to pretend we are a major world power. Germany Sweden Holland Spain etc and many other countries do not have this cost. Are we ever going to drop a nuclear bomb on someone without agreement with America and NATO to do so?
I have also always been in favour of nuclear power, but now I am not. The Government says it is going to build 7 or 8 new nuclear power stations spending billions of pounds on each. Japan shows that this is highly dangerous, far more than the economic crisis, Stop this policy as well and spend half the money on developing alternative means of power. My opinion DO THIS and our debt problem is solved.

Member
evie says:
11 April 2011

It seems to me (and I work in personal tax) that those who shout loudest about how hard it is for them are in fact those on higher incomes – if you are lucky enough to pay tax at 40%, you are in the top 20% or so of the population. That means that 8 out of 10 people earn less than you, but why do we hear so much about the extra 750,000 who will come into the higher rate bracket, and so little about the vast majority (earning less than around £25,000) who will be as well or better off than before, even after taking into account the increase in national insurance. I ceratinly don’t agree with everything the government has done, but we should look at the tax position in a more balanced way.

Profile photo of richard
Member

Sorry – you are missing out those of us below the poverty line – State pension £97 a week – too low for tax anyway – so no tax benefits – but almost all the costs – food – rent etc has risen – result – we’re poorer

Take those on so called “benefits” – often through no fault of their own – these have been reduced – Results they are poorer