April 2011
Raising the personal allowance
The personal allowance is the amount of money you are allowed to earn each year before you start paying income tax. As mentioned in a recent BBC article, Nick Clegg and the Liberal Democrats made an election pledge to raise the personal allowance to £10,000 (at the time of the election, the personal allowance was £6,475). As part of the coalition government the Conservatives and the Lib Dems agreed to make this increase before 2015, and last year the threshold was increased by £1,000 to £7,475 – although, as I reported at the time, the threshold for 40% tax was lowered at the same time so that those earning more would start paying 40% tax sooner.
This April, the standard allowance for the under-65s is set to increase again, this time to £8,105. This is less of an increase than last year (a change only of £630) but it will still make a significant difference to those on lower incomes. Nick Clegg is pushing for the threshold to be raised quicker than that, but the Conservatives are resisting it for now – the main reason for this being that the lost tax would have to be paid for elsewhere. This could mean either increasing other taxes or making further cuts.
The personal allowance is affected by your tax code, which means you may not receive the standard tax-free amount. More information about tax codes in this blog post.
The Salary Calculator will be updated in early Spring with the tax thresholds and rates for April 2012.
April 2011 rates applied
The April 2011 tax and National Insurance rates have been applied to The Salary Calculator.
In comparison to last year, when rates for most of us were unchanged, there are a number of differences which will mean that your payslip will be different next month.
The standard personal allowance (the amount you can earn tax-free) is increasing by a thousand pounds to £7,475, but this is mitigated in some way for higher earners by the threshold for 40% tax being lowered to £35,000. Similarly, NI rates increased by one penny in the pound (to 12% and 2%) but the threshold for paying NI increased so lower earners may not be too badly affected.
To see how you’re affected, try out The Salary Calculator with your salary. The details of the figures used by The Salary Calculator are available on the About page.
Useful links:
20% VAT from 4th January 2011
As you are probably aware, in June this year the Chancellor announced in his emergency budget that VAT (Value Added Tax) would increase from 17.5% to 20% from the 4th January 2011. This will mean a small increase in the cost of most goods and services, as suppliers will have to increase the price they charge to cover the extra VAT they are having to pay to the Government.
Although a lot of people wait until the January sales before making a large purchase, in some cases you might find that it’s worthwhile to buy before the end of the year so that you only pay the lower 17.5% VAT. However, bear in mind that the amount of VAT increase is only small (a little over 2%) compared to the kind of discounts often offered in January sales.
For large purchases, such as a new car, the VAT increase could lead to a significant increase in price so it is worth checking what the VAT increase means for you. Fortunately, over at our sister site The VAT Calculator we have created a simple tool that shows you how much more something will cost if you buy it after the VAT increase. Just enter the current cost (including VAT) and see what the cost changes to with 20% VAT – try out the 20% VAT comparison calculator.
You can learn more about VAT by reading the information here.
Emergency Budget Update
The new Chancellor of the Exchequer gave the coalition government’s first Budget today, within 50 days of the election as promised. There were a great many changes, most of which will take place from April 2011, so I have added a new row to The Salary Calculator to give an indication of what the impact might be.
Unfortunately, a lot of the figures won’t be confirmed until towards the end of this year, so I have had to make some estimates based on what was described in the Emergency Budget report. For those who want to know, details of the figures I’ve used are below. For those who don’t – you can go straight to the “April 2011″ row of the Salary Calculator for April 2011 values.
Another change announced in the Budget was an increase in standard VAT rate from 17.5% to 20% effective from 4th January 2011. The VAT Calculator has also been updated so you can see what a difference this will make to purchases.
The calculations for the April 2011 values in The Salary Calculator are based on the following assumptions. Under 65 personal allowance increased to £7,475, over 65 allowance increased to £9,940, over 75 allowance increased to £10,090. Threshold of 40% tax lowered to £35,000 from £37,400. National Insurance rates increase from 11% to 12% for basic and 1% to 2% for additional, as set out by the previous government’s budget. National Insurance basic rate threshold increased to £7,475, additional rate lowered to £42,875. All other values unchanged.
Edit (5th January 2011): The values above have been updated with the latest information from the Treasury and the April 2011 calculations have been updated in line with these. The Salary Calculator will be updated again with final values in early Spring 2011, following the budget update.
Coalition pledges to affect tax
So we’ve got a new, coalition government and they have published the details of the agreements which were reached between the Conservative and Liberal Democrat parties. As you can see in the linked article, campaign pledges from both parties were included in the agreement, reflecting the compromises necessary.
They have promised that a new budget will be announced within 50 days, which will include changes to PAYE taking effect from April 2011. These changes will include increasing the income tax personal allowance to reduce taxes for low and middle earners (although not immediately the full increase to £10,000 the Lib Dems wanted), but the employee National Insurance threshold changes the Conservatives put in their manifesto will not be included. However Labour’s planned increase in employer National Insurance will not go ahead, pleasing Conservative supporters.
Full details will not be available until the promised emergency budget, but I promise to make available as soon as possible any relevant changes to The Salary Calculator!
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