In the Autumn Budget 2017, Chancellor Philip Hammond revealed some key figures for the next financial year. Here’s what you need to know:
Tax free personal allowance
Personal Allowance is going up from £11,500 to £11,850. This means that you only pay income tax on earnings above £11,850 in the 2018/2019 tax year which starts on the 6th April 2018.
National living wage
National Living Wage is also increasing from £7.50 to £7.83 per hour. This is the legal minimum wage payable to people that are over 25 years old and will help put a little bit more money in your pocket. Two million people are predicted to be in this bracket.
- Minimum Wage 21-24 year olds is rising from £7.05 to £7.38 per hour. This is calculated as a 4.68% rise.
- Minimum Wage for 18-20 year olds will become an hourly rate of £5.90 (from £5.60)
- Minimum Wage for 16-17 year olds goes up to £4.20 per hour (from £4.05)
- Apprentices’ Minimum Wage will be £3.70 per hour (up from £3.50)
Income tax thresholds
Higher Rate Tax Threshold is increasing from £45,001 to £46,350. This means that you don’t pay higher rate tax until you earn £46,350. This rate applies in Northern Ireland, Wales and England. The Scottish Government will release their own budget changes on December 14th.
Additional Rate Tax Threshold and rate are both staying the same at 45% on earnings over £150,000.
National Insurance
National Insurance Contributions are remaining the same.
So that’s the facts and figures you need. What about the impact of the changes?
Tax Thresholds
Talking to Moneywise, Aegon’s head of pensions, Kate Smith, said: “Increasing the higher rate tax threshold to £46,350 means more people should pay less income tax from next April. Some will move out of the higher rate tax bracket and become basic rate tax payers. This affects pension saving as individuals receive tax relief, or a government top-up, on their own contributions, based on their highest marginal income tax rate of 20%, 40% or 45%. Moving more people into the basic rate tax bracket means the government top-up is halved.”
Good news for some taxpayers who will stay out of the higher rate tax bracket. But bad news for pension savers who will lose out on their government top-up if they remain in the basic rate tax bracket.
Rising minimum wages
Obviously, getting paid anything more is better than wage rates staying the same, or decreasing. But the Living Wage Foundation organisation has calculated that a real living wage (the government has borrowed their term) needs to be a minimum hourly rate of £10.20 in London and £8.75 in the rest of the UK. The Living Wage Foundation base their figures on the actual “cost of living, based on a basket of household goods and services”. They also believe that a multi-levelled system based on age should be dismantled and everyone over 18 should receive the same rate. There are over 3,600 employers who work under the Living Wage scheme on a voluntary basis; that’s 150,000 taxpayers being paid a fair rate for a day’s work.
Their analysis of the government’s calculations are on their website:
“However, the government’s ‘national living wage’ is not calculated according to what employees and their families need to live. Instead, it is based on a target to reach 60% of median earnings by 2020. Under current forecasts this means a rise to less than £9 per hour by 2020. For under 25s, the minimum wage rates also take into account affordability for employers.
The real Living Wage rates are higher because they are independently-calculated based on what people need to get by. That’s why we encourage all employers that can afford to do so to ensure their employees earn a wage that meets the costs of living, not just the government minimum.”
Anything extra in taxpayers’ pockets is great. But will it provide the ‘boost’ to lower paid workers that the government intends? Unfortunately it is probably too little to make a huge impact.
