Last week, chancellor Philip Hammond delivered a speech announcing the new Budget from HM Treasury. He also claimed that these financial plans would result in the end of this long and exhausting era of austerity. However, it can be difficult to read through all of the information in the Budget to see if this is really the truth. Despite promises of more savings for many taxpayers, these savings may actually be lower than suggested.
How is Income Tax Changing in 2019?
The personal allowance will be rising again from 6th April 2019. This allowance is the amount of money that you can earn without having to pay any income tax to HMRC. For the current tax year (2018 – 2019), the personal allowance is £11,850. Above this and up until £46,350, everyone must pay the basic rate of income tax at 20%. From this amount on up to £150,000, these higher earners must pay the higher rate of income tax at 40%. These percentage rates are not changing. However, the thresholds will be increasing for the basic rate and the higher rate. Workers will be able to earn up to £12,500 before paying the basic rate, or up to £50,000 before paying the higher rate. This should help up to 32 million people.
How is National Insurance Changing in 2019?
Employees must pay National Insurance contributions to qualify for certain benefits, including the State Pension. You should be making National Insurance payments if you are over 16 and earning a certain amount. Employees must pay 12% of their earnings between £162 a week and £892 a week, then 2% on earnings above that. Your employer will take this from your wages along with any income tax you owe. If you are self-employed, you must file a Self Assessment tax return every tax year so that HMRC can tell you how much you need to pay them. Like income tax, the rates are not changing, but the thresholds are. Workers can earn up to £8,632 a year (rising from £8,424) before having to pay the 12% of National Insurance contributions. However, the threshold to become eligible for the lower 2% rate is rising to £50,000 (from £46,350).
What do these Budget changes mean for me?
How these changes will affect you depends on how much you’re earning. If your income is below £12,500, you will keep up to £650 more free from income tax than the previous year. You will still have to pay for National Insurance contributions, but these will have a slight reduction. Anyone in the current basic rate tax band will on average be better off next year, if only by £100-200. The downside of the changes will apply for earners with an income between £46,350 – £50,000. While they will now get an extra £3,650 at the 20% tax rate instead of 40%, they will also have to pay 12% in National Insurance contributions on this amount instead of 2%. This means that the savings from the income tax changes are cut more or less in half. They will save 20% on income tax but have to pay 10% more for National Insurance. This is the part which many people are considering sneaky, because the chancellor did not advertise this in his Budget announcement, choosing to emphasise the income tax savings.