Why are there always new taxes? Must I pay tax? Is there a legal way to reduce my tax? Cashfloat is a lender that cares about your money. Learn to save on tax now.
Each year the UK government’s finance minister, the Chancellor of the Exchequer, presents the budget to Parliament for running the country. This is designed to determine how the government will raise the money needed to pay for the running of the country in the following financial year. We call the income side of this equation “taxation”. In this article, Cashfloat emergency loans lender will look at what’s new in tax for 2017.
Taxation includes many categories of government charges. This includes income tax (pay as you earn PAYE), national insurance contributions (NI), council tax and vehicle tax to name but a few. There are also taxes on businesses and organisations, but in this article, we are specifically going to look at personal taxation. Personal taxation affects individuals, households and families. Naturally, how much tax you pay can have serious implications for your personal finances. Of course, it can have a large impact on how you manage debt and make savings.
First, we will start by looking at the old and new taxes we have to pay and what changes have come into force for 2017. Then, we will then look at how to calculate personal taxes and make the most of the allowances. Finally, we will see how, with careful planning, savings on the amount of tax you have to can be made.
Every year the Chancellor of the Exchequer, currently Philip Hammond MP, presents the government’s budget to the House of Commons. In recent years, this has occurred twice annually in spring and autumn. Philip Hammond announced some significant changes in when the budget would be presented from now on, and in how self-employed and others would have to submit tax returns. The plan is to revert back to having one annual budget statement in autumn.
Since ancient times, governments and rulers have taxed their citizens or subjects. Throughout the 20th century and continuing into the 21st-century, tax levels have generally risen in developed nations. This is because the services and costs of running administrations have increased.
Despite the government having no money of its own, the media often perpetuates the myth that the government has “cut spending” or is starving the NHS of much-needed funding, etc. The simple fact is that governments are elected to make decisions on behalf of the electorate. These decisions include how to spend money on behalf of all citizens, all of whom pay tax in some form.
Public sector spending rocketed after the 2nd World War as more services were provided by the central and local government. Notably, the NHS (National Health Service) was initiated in July 1948. When the NHS launched in 1948, it cost taxpayers the equivalent of £9billion at 2010 values. By 2010, the annual cost had risen to £100billion – about 10% of all public sector spending. This shows how the size and complexity of the NHS have resulted in much more money being needed. It is 98.8% funded by Income Tax and NI (National Insurance) contributions, with the small balance being made up by selected fees. (Wikipedia). According to the respected charity, The King’s Fund report the estimated cost of the NHS for 2016/17 will be £120billion.
This example of the NHS is only an indication of how costs, and necessarily the new taxes needed to pay for them, have increased substantially since WWII. Since the Conservative administration of Margaret Thatcher, elected in 1979, right through the New Labour years of Tony Blair’s government from 1997 to 2010, all governments have tried various ways to try to reduce public spending. Even the coalition government headed by David Cameron and today’s Conservative government led by Theresa May attempt to do the same. However, despite efforts by various governments to contain public spending, it simply hasn’t happened. In what is known as the ratchet effect. This, of course, puts increasing pressure on households, leaving some looking for extra money from wageday advance providers.
Public spending just seems to have one overall direction – up. The IFS (Institute for Fiscal Studies) reports in detail on the trends of government spending. They estimate that between 1938 and 2000 UK government spending multiplied by a factor of 5.5. Government revenue absorbed 23.4 percent of GDP in 1939, while it had reached 40.2 percent in 2000.
Governments of both major parties have “privatised” many elements of public service. Examples: Electricity, gas, water & sewage, railways, utility supply and telecommunications companies. While this may have got the costs of running, it has not reduced the levels of taxation needed. Indeed, it has often resulted in increased costs for everyone. This is because the market doesn’t always work in the interests of consumers. Especially when forms of monopoly have continued to exist in many sectors.
Just like the NHS, the population has continued to expect more from its public sector providers. Whether it is emptying the bins or repairing roads, providing new schools -the list is endless. However, with frequent reports in the media about how services are struggling, or services fail or are cut back, the demand for tax income to pay for them seems insatiable.
As well as ongoing spending for services, the government also has to fund major infrastructure projects. For example, the Crossrail in London, the proposed HS2 mainline rail project and the new Hinkley Point nuclear power station. This is all in addition to paying interest towards the national debt.
The OBR (Office for Budget Responsibility) states that UK national debt is a massive £1.6trillion+ – that’s over £1,600,000,000,000 – over £25,000 for every household in the country. It estimates that this will rise to over £1.7trillion by the end of this decade. The interest the government has to pay on servicing this debt is still substantial is money today’s taxpayer has to fund for past spending and trade deficits. This is although it while at low % rates due to the good standing of the UK economy by credit rating agencies,
So, that’s a large part of the reason we need to pay taxes. Now let’s move on to what taxes we have to pay. Then, we can examine if there are ways to legally reduce our tax bill.
While businesses have to pay tax, this article aims to address tax paid by the individual. Obviously, business taxes are important with companies having to pay National Insurance (NI) contributions on behalf of employees. Businesses also need to pay business rates (council tax), corporation tax (levied on profits) and VAT (Value Added Tax). All UK businesses with a turnover more than the tax threshold must be VAT registered and pay the tax. The threshold is £85,000 per annum as of April 2017.
As individuals, there are some taxes we cannot avoid paying. These are what we call ‘consumer taxes’. They are added to the price of goods or services before we pay for them, so cannot be avoided. These include VAT on most goods and services. The standard rate is levied on most items. There is a reduced VAT rate on some items, such as home energy supply. As well, most food and some other items are zero-rated.
Certain specific categories of product we purchase also have a tax that we call “duty” applied to them. These are often referred to in the media as “stealth taxes”. This is because they have been a way for governments to raise £billions in extra taxes while appearing to freeze or reduce headline rates of VAT or Income Tax at different times. Some of these taxes are also used as a tool by the government to try to alter consumer behaviour.
Another “cash cow” for Chancellors of the Exchequer is car ownership. As well as paying VAT on the car purchase and annual Car Tax, you must pay for fuel duty. This is included in the price every time you buy petrol or diesel. Almost half the price of diesel or petrol is fuel duty.
If you like a flutter, the taxman is also going to love you. The government charges special duties on various forms of gambling. Even the National Lottery is taxed at 12%. Typically, this is a point that many players may not realise. They think they are just contributing to “good causes”. Betting shops and football pools are taxed at 15%. Casinos games can be taxed between 15% and a massive 50%. (Rates current as of April 2017). Some gambling duties will increase in line with inflation.
Under EU law, VAT is not allowed on insurance premiums. So, we have to thank Kenneth Clarke MP for inventing another stealth tax in 1993. This is Insurance Premium Tax (IPT). Again, this cannot be avoided if you pay for insurance. As of April 2017 most insurance policies, including household and cars, are taxed at 10%. Some types of insurance, including travel, are taxed at a higher rate of 20%. The standard rate of Insurance Premium Tax is due to increase by 2% from 10% to 12% in June 2017.
Substantial increases in tobacco duty now accounts for over £5 on every pack of 20. In addition, you are charged over 50p on every pint of beer and in excess of £11 on every litre of spirits sold. A new measure named the minimum Excise Tax (MET) has been introduced to ensure a minimum level of duty is charged on the cheapest budget priced cigarettes.
So now we’ve dealt with the taxes we cannot avoid paying when we purchase items or services, let’s move on to look at how this year’s spring budget has altered things for us. The simple answer is, not a lot. This year’s spring budget was more or less “revenue neutral”.
There were no changes to income tax rates in the Spring 2017 budget, nor to NI rates paid by employers and employees. An attempt by the Chancellor of the Exchequer to increase the rate of NI paid by many self-employed people was reversed. This was following an outcry in the media and by the public pointing out that the ruling Conservative Party manifesto stated that there would be no increase in income tax (PAYE), national insurance (NI) or value added tax (VAT) rates during the period of the 5 years fixed term parliament from May 2015 to May 2020.So, what did change?
The level at which basic rate income tax, the tax-free allowance, was increased to £11,500 in the spring 2017 budget. This means all employees earning less than £11,500 will not pay any income tax on their wages. There will also be a marginal reduction in tax paid by employees earning over this level.
New taxes on sugary soft drinks were introduced in the 2017 budget to take effect in April 2018. Two rates will apply. For drinks with 5g of sugar per litre, the charge will be 18p. For drinks with over 8g of sugar per litre, a higher rate of 24p will apply. These new taxes were introduced to try to reduce the consumption of sugary beverages. This is partly to address health concerns about obesity levels, particularly in children. However, one effect of the advance notice this new tax was given is that some manufacturers are reformulating their drinks with lower levels of sugar to avoid paying the new taxes.
Another addition to new taxes of 2017 is the increase to APD (Air Passenger Duty) in line with RPI (Retail Prices Index) inflation are effective April 1st, 2018.
Increases of approximately £5 per vehicle in annual vehicle tax rates (VED – Vehicle Excise Duty). This is also one of the new taxes that will apply from April 1st, 2017. Details vary according to type and age of vehicles.
Another change introduced in the 2017 spring budget is the move to Making Tax Digital for Business. This will affect all self-employed people, and anyone already having to submit an annual tax return. No new taxes have been introduced, but the way in which self-employed individuals and small businesses need to report their tax information digitally every quarter have.
The UK does not implement the standard EU form of TIN (Tax Identification Number). The UK uses two forms of identification for personal tax purposes: A UTR (unique taxpayer reference) comprising 10 numerical digits. A NINO (national insurance number) This consists of two letters, six numbers and a suffix letter A, B, C or D
Personal taxation details can be viewed and amended on the HMRC website via the .gov portal by setting up a personal tax account. You will need your NI number to set this up if you do not already have an account.
From the new taxes year commencing 6th April 2017, the single person tax-free allowance, before employees pay income tax, is increased to £11,500.
How does my family or personal status affect my tax?
The basic tax-free allowance for an individual is £11.500 for fiscal year 2017/18. Additionally, there is a married couple allowance of £1,150 which transferable between partners who are married or in civil partnerships.
There are additional tax benefits for blind persons and before paying income tax on savings. Families with children can apply for various income supplements which HMRC admimister. This includes working and child tax credits, child benefit and guardian’s allowance. These can substantially increase income levels, especially for lower paid individuals and couples. Allowances for childcare costs are also available for working parents.
Calculating your income tax can be complicated. For employees with simple tax affairs, there are online “tax calculators” where you simply input a few details such as your income and personal/family details to get an estimate of the amount of income tax and national insurance you should be paying.
If you are an employee, there are few options to reduce your tax bill. Check with your employer or trade union to find out if there any tax allowances you could qualify for. For example, this could be about specific specialist equipment or clothing you may have to provide to undertake your work. Otherwise, it is important to ensure that you have been issued with the correct tax code. Also, that your employer and HMRC are acutely aware of your personal circumstances about tax allowance. Ensure they know the status of partners or spouses, and of any dependent children. Remember to take advantage of the transferable marriage tax allowance which is transferable between married persons and partners in civil partnerships. legally reducing teh amount you pay on tax can help you budget better, leaving you less prone to rely on expensive unsecured loans for bad credit.
If one of you earns less than the personal tax allowance, you should ensure the extra compensation transfers to the partner paying tax on their income. Helpful advice on such matters is available free from HMRC and via Citizens Advice.
Remember, if you are in the fortunate position to be able to afford to save money, there are tax benefits to savings. A basic rate taxpayer can earn up to £1000 in interest on savings tax-free. Anyone with personal taxable income below £17,000 per annum does not have to pay tax on savings income.Sometimes I think the UK benefit and tax system is so complicated just to catch us out! Click To Tweet
Genuinely self-employed individuals have greater scope to reduce their tax bill legally. Ensure you are claiming all permitted expenses and allowances and deducting them when making your tax declaration. Some self-employed individuals can also save tax by registering as a sole trader or partnership, then withdrawing an income via a dividend from the company. This results in paying lower levels of tax than the standard rates which would apply if you pay income tax. However, the government is looking to reduce such advantages and has reduced the tax-free dividend allowance from £5000 per annum to £2000 in the spring 2017 budget.
If your tax affairs are complex, it may pay to seek advice from an accountant or small business organisation such as the not-for-profit FSB, The Federation of Small Businesses. Initial consultations will often be allowed free of charge enabling you to determine if their services and advice could be of value to you.
The message is to make sure that you report your full circumstances to the tax authorities, and that you check to make sure you have been issued with the correct tax code. Also, take the time to check if you are claiming all tax allowances and tax credit benefits you may be entitled to. HMRC and their staff are there to help ensure you pay the correct amount of tax, and not a penny more. Use them and Citizens Advice to obtain help to ensure you are not losing out by paying more tax than you should. That sums up new taxes for 2017 from Cashfloat small loans provider. Let’s hope we can write about how news taxes for 2018 have gone down!