New Tax Year: New Tax Changes

/, Business, Personal Finance/New Tax Year: New Tax Changes

New Tax Year: New Tax Changes

So here we are, if not in a Brave New World, at least in a Brave New Tax Year. Last week saw the end of 2017/18 and, on Friday, April 6th, we said hello to 2018/19. So we thought it would be useful to bring you a summary of the major tax changes that will impact you through the coming tax year. But first, let us deal with a very simple question…

By Mark Richards

Why does the British tax year start on April 6th?

A fair question. Logic dictates that the tax year should start when the calendar year starts. Fortunately, the answer is simple – even more simple than Easter being on the first Sunday after the first full moon after the Spring equinox.

In England and Ireland the New Year used to start on ‘Lady Day’ – March 25th, supposedly the day on which the Angel Gabriel gave the news to the Virgin Mary. The tax year accordingly ran from the beginning of the year to the end of it, with everyone thinking that March 25th was a perfectly rational day to start the year.

By 1752, however, Britain was well out of step with the rest of Europe, thanks to our late adoption of the Gregorian calendar. We were 11 days out and an adjustment was finally made to bring us into line with Europe: determined that there should be no loss of tax revenue, the Treasury moved the beginning of the 1753 tax year forward to April 5th. Then another day was added in 1800, moving the beginning of the tax year forward to April 6th where it has remained ever since. So there you are: what could be simpler?

The tax changes

In the main, the tax changes are good news. Here are the details:

The National Living Wage for those aged 25 and over has gone up from £7.50 an hour to £7.83 an hour. There are also increases for younger workers.

The personal allowance – the amount you can earn before you pay tax – is also increasing, and is now £11,850. The personal allowance does decrease once you are earning six figures, reducing by £1 for every £2 you earn: so anyone lucky enough to be earning £123,700 per year will have no personal allowance. If you pay higher rate income tax, then you now start paying at a salary of £46,350 per year, compared to the previous £45,000 per year.

Pensions are increasing – they are going up by 3%, meaning an increase of £3.65 a week for those in retirement.

The petrol fuel duty stays frozen for the eighth year in a row: it is currently 57.95p per litre.

Some bad news on tax changes

Council tax is going up around the UK. The average rate of increase is 5.1% – if you are in London, that will mean an extra £55 per year for the average property.

The sugar tax is here. From April 6th manufactures of sugary drinks will have to pay the Sugar Levy: it is thought that the levy will increase the price of a typical can of fizzy drink by around 8p a can. The idea behind the sugar tax is obvious – sugary drinks cost more so we will drink less of them and therefore – as a nation – we will be healthier. I have my doubts: some commentators have described the tax as simply “a revenue-raising device that will clobber those on lower incomes.” It is hard to disagree.

Student loans and auto-enrolment pensions

We now come to two measures which perhaps deserve a more in-depth look: changes to the student loans regime, and to auto-enrolment pensions.

Good news for students

The new tax year brings good news for former students as they will now be able to earn more before they start to repay their student loans. Previously the threshold for repayments was set at earnings of £21,000 a year: this has now been increased to £25,000 a year.

The National Union of Students said the change was a “welcome relief” for many former students, and the Department for Education estimates that the move will benefit around 600,000 graduates in the next financial year.

The increase to £25,000 will save graduates £360 a year: repayments are made at 9% of earnings over £21,000 so graduates now have £4,000 of earnings on which they do not have to make student loan repayments. Someone earning £30,000 a year will now make £450 per year of student loan repayments, compared to £810 under the old threshold.

Is it all good news? We have written previously that a great deal of student debt will never be repaid. Increasing the threshold will simply mean that graduates will ultimately pay off their debt later if at all – and while they may not be making repayments, they are still incurring interest.

The current student loan scheme works for neither the borrower nor the lender, and while this increase in the threshold might be welcomed as a boost to graduates’ cash flow, it kicks dealing with the shambles that is the student loan scheme further into the long grass.

An increase in pension contributions

Many graduates who are now members of company pension schemes might well find that what they gain with one hand they lose with the other. From the start of the new tax year last Friday the amount which people in auto-enrolment workplace pensions contribute will rise from 1% of their earnings to 3%.

One firm of accountants – making an early bid for the Obvious Statement of the Year award – said, “the increase in monthly contributions may result in a decrease in take-home pay.” For most people the increases should be affordable and will clearly result in a better pension, but if we take our mythical graduate on £25,000 the increase in pension contributions will come very close to wiping out the saving on her student loan repayments.

Why are auto-enrolment contributions going up?

Simply put, to provide decent pensions. There was never any suggestion that the rates at which they were introduced – a 1% contribution from both employer and employee – would provide an adequate pension, hence the current increase to a 3% contribution from the employee and a 2% contribution from the employer. Looking ahead, contributions will rise again in April 2019, with the employee paying 5% and the employer paying 3%.

(If you really feel that you cannot afford the pension contribution increase then you can ‘opt down’ and continue to contribute at the old rate of 1%, but in that case, your employer is no longer obliged to make any pension contribution at all for you.)

As we said above, for most people these tax changes should be good news. But there is more to a household budget than tax changes, and inflation will continue to play an equally important part in determining whether we all feel better off at the end of the month – as could the developing trade war between the US and China, which could well have an impact on jobs in the UK.

By | 2018-07-15T13:32:13+00:00 April 9th, 2018|Banking, Business, Personal Finance|0 Comments

About the Author:

A previous financial services business owner, Mark is an experienced Journalist Speaker, Speechwriter and Coach. He has written for a number of websites related to the financial sector and won numerous awards. Mark has also published a number of books.

Leave A Comment