The Salary Calculator

Interest rates in the UK

by Madaline Dunn

When it comes to borrowing, be it for a mortgage or a loan, an interest rate will be applied to the amount you borrow. The same goes for any savings you accumulate. That said, it can be tricky to get your head around the ins and outs of interest rates.

According to a study conducted by MoneySuperMarket, 70% of those polled didn’t know what the base rate was. That means there are lots of people out there that could do with a helping hand.

At The Salary Calculator, we’ll give you the rundown of interest rates in the UK and make sure you’re updated with the latest. This article will explain:

• What an interest rate is
• What the base rate is 
• What the current interest rates are
• The different types of interest rates
• Whether or not interest rates will rise
• The pros and cons of the current low rates

What is an interest rate?

An interest rate refers to either the percentage an individual is charged for borrowing money or earned through saving. It is typically expressed as a percentage of the amount you borrow or save over a year.

What is the base rate?

The base rate or bank rate is the most important interest rate in the UK and refers to the rate at which banks and lenders are charged for borrowing. Currently, this rate is 0.1% which influences borrowing and saving interest rates.

Current rates

Interest varies from bank to bank, but often it can cost more to borrow less. According to MoneySavingExpert, the best interest rates for loans of between £3,000 – £4,999 range from 7.3% rep APR and 8.4% rep APR.

For larger amounts, for example, between £15,001 – £20,000, the best interest rates range from between 2.8% rep APR and 2.9% rep APR.

When it comes to savings, easy access accounts with best rates range from between 0.4% AER variable and 0.5% AER variable.

The different types of interest rates

There are a few different types of interest rates, these are:

Fixed Rate of Interest – With this interest rate, the amount you are paid, or the amount you owe, is at a set rate that remains unchanged throughout the term of your account. 

Variable Rate of Interest – Also known as a “floating rate,” with this interest rate, the amount of interest you are paid or the amount of interest you owe can change depending on the base rate.

When exploring loans and savings, you will likely run into two other terms, APR and AER. But what exactly do they mean? 

APR – Annual Percentage Rate: This refers to the total cost of borrowing money in a year (loan or credit card). Included within this are interest and standard fees.

AER – Annual Equivalent Rate: This type of interest applies to saving accounts and is the amount you earn in a year.     

Will interest rates rise?

It is difficult to determine for sure whether interest rates will rise. However, considering the current state of the economy, having shrunk by 19.8% in 2020, interest rates are unlikely to rise any time soon.

The pros and cons of the current low rates

When it comes to low interest rates, there are, of course, advantages and disadvantages. These are as follows:

Pros:

• Lower interest rates make it easier for people to borrow money
• When borrowing is made more accessible, this can drive investment
• Low rates can also make housing more affordable by lowering mortgage payments

On the other hand…

Cons:

• Lower interest rates can detrimentally impact savers because they earn less through interest
• As a result, this can reduce the incentive to save
• Low interest can also lead to people taking on more debt than they can afford 

Tags: interest rates, Loans, Mortgages, savings

Self-Employed Sole Traders in the new tax year – where do you start?

by Admin

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The new tax year started on the 6^th April – that we do know for sure.

At times it felt like everything else changed and at a very quick pace. Our world slowed down – working from home where possible, home schooling our children the #StayHomeSaveLives were on windows with rainbows.

People settled into ways of working from home with daily routines including video calls to keep connected with fellow employees, following pop quizzes on the radio or simply taking time to reflect. Kids following PE lessons, craft tutorials and Disney princesses via online platforms while parents worked.

As this way of life continues for the foreseeable how can you be more productive?

One main cause for concern is money, knowing your financial stance helps you plan for the future. By getting ready to calculate your 2019-20 tax return – you will have your income and tax liability ready.

Digital copies of receipts and paperwork can be saved allowing for a clear out of the home office.

Whilst you do not have to submit right now, being safe in the knowledge of your outgoings for tax means you can then focus on sales and plan for the future.

The government stepped up and offered financial support

As the pandemic picked up pace and businesses were restricted by the Government the self-employed sat waiting and hoping they would be thrown a life-line. Chancellor Rishi Sunak gave them the Self-Employment Income Support Scheme.

The scheme is open to self-employed individuals or a member of a partnership who:

• Have submitted their Income Tax Self-Assessment tax return for the tax year 2018-19.
• Traded in the year 2019-20
• Are trading when they apply, or would be except for COVID-19
• They intend to continue to trade in the tax year 2020-21
• They have lost trading/partnership trading profits due to COVID-19

For a further in-depth review of the scheme please follow the link above or visit www.gov.uk

Please note you had until 23^rd April 2020 to file your 2018-19 self-assessment tax return to be eligible for this scheme.

A further helping hand was offered for anyone who uses Payments on Account, they will have their normal payment due on 31^st July deferred –  this payment won’t be due until 31^st January 2021.

Another deferral was that of the VAT payments due before 30^th June 2020, these will now not need to be made until 31^st March 2021. However you will be required to file your VAT return.

There were earlier announcements made by the Chancellor in March 2020 with an emergency £330bn financial package to bolster the UK economy. These included a business rates holiday and for struggling firms, loans.

There were postponements too for the controversial tax reforms to off-payroll working rules, more commonly known as IR35 – these have been postponed until April 2021 to help ease some strain from the pandemic and the effect it is having on businesses and individuals.

In 2019, it was announced that the Personal Allowance would be increasing from £11,850 to £12,500. Thanks to the increase, the tax brackets in the UK were also to be pushed back. Specifically, the basic rate limit was increased to £37,500 and the higher rate threshold was set at £50,000.

In April 2020 the Capital Gains Tax allowance increased to £12,300. Anything above the allowance, though, will be taxed at 18% for basic-rate taxpayers and 28% for additional-rate taxpayers. The Capital Gains Tax Allowance is the amount you can make from the increased value of your possessions tax-free.

GoSimpleTax bring you their award winning software, which factors in all the latest updates.

With GoSimpleTax software, filing has never been easier as it does all the calculations for you and thanks to features that allow you to take a picture of expenditure and upload it to your records, as well as log all forms of income.

With the documentation you need in one place and learning resources to help minimise your tax liability further, all that’s left for you to do is press submit.

Take their free trial today, no credit card required.

Tags: April 2020, Employed and Self Employed, HMRC, income tax, Loans, national insurance, personal allowance, self employed, self employment, tax rates, VAT

New! Postgraduate Loan Repayment

by Admin

Starting from April 2019, repayment of new Postgraduate Student Loans will be done through Pay As You Earn (PAYE). As The Salary Calculator has just been updated with the April 2019 figures, repayment of postgraduate loans has been added so, if this applies to you, you can see what effect this will have on your take home pay.

These loan repayments are in addition to Plan 1 and Plan 2 student loan repayments, which you may have from undergraduate courses you have studied. Postgraduate loan repayments are calculated as 6% of gross annual earnings over £21,000. More information is available from the Student Loans Company.

Also, so you can see how your loans are being repaid, if you select more than one loan type on The Salary Calculator you will be able to click for a breakdown of how the repayments are distributed to your different student loans.

Because this only comes in to effect from April 2019, in order to see the effect of postgraduate loan repayments you will need to select “2019/20” from the Tax Year drop-down. Head over to The Salary Calculator to check it out!

Tags: 2019, April 2019, Loans, Pay As You Earn, student loan company, student loans, The Salary Calculator

Understanding student loans

by Admin

I discovered an excellent article today by Martin Lewis, laying out the facts behind student loans – how they work and how they are repaid. There are a number of common misconceptions about student loans, and this article sets out all the information you would need to understand if you were considering going to university (or sending one of your children). Topics covered include:

• If you take a low paying job after graduation, you’ll only repay a small amount of the loan (or none of it!)
• Monthly repayments under the new loan system are lower than under the previous system
• Your monthly repayments are the same, no matter how high your tuition fees are
• You only start repaying once you leave university and start earning
• You will still be able to get a mortgage

To learn more about all of these and more, check out Student Loans Mythbusting.

You can see how much your student loan will cost each month, and how long it will take to repay, by using the tool on our sister site Loan Tutor.

Tags: Loan Tutor, Loans, repayment, student loan company, student loans

Save money with offset mortgage

by Admin

Over on our sister site LoanTutor, there is a new tool and a new article trying to explain what an offset mortgage is and how it could help you save money. With an offset mortgage, you use your savings to effectively cancel out some of your mortgage balance, which reduces the interest your lender charges you. You can use this to either reduce your monthly payments, or keep your payments the same and pay off your mortgage quicker.

If you would like to learn more, have a read of the offset mortgage article, or to see how much you might be able to save try out the offset mortgage calculator.

Tags: interest rates, Loans, Mortgages, offset, offset mortgage, savings