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

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?