Changes to Income Tax, Council Tax, and Pension Contributions in 2018

 

Changes to Income Tax, Council Tax, and Pension Contributions in 2018

As you already know, the new tax year began on 6th April. Earlier this month, new tax rules came into effect which will apply until 5th April 2019. Some of them could save you money, such as the changes to Inheritance Tax. The IHT allowance remains frozen at £325,000 for 2018-2019. But if your estate includes your home, your allowance can go up by an additional £125,000. This rose from £100,000 in the last tax year. It means that should anything happen, your heirs will inherit more tax-free money. On the downside, some tax changes could mean you will be paying more. Drivers who bought their car after 6th April 2017 will be paying new Vehicle Excise Duty tax rates this year. The introduction of the controversial “sugar tax” means that fans of soft drinks will be out of pocket. See below for the most important tax changes regarding income and living costs.

Reductions to Income Tax

One positive change for the 2018-2019 tax year is an increase in Personal Allowance. This is the amount of tax-free income you can earn in the year. People who are in the basic rate tax band previously paid 20% tax on earnings from £11,501 – £45,000. From 6th April 2018, the standard tax-free allowance is £11,850. Anyone who earns less than this will not have to pay any income tax. The basic rate tax band is now £11,501 – £46,350. This means that people earning between £45,001 – £46,350 in a year will go down a tax band from last year. Only those earning £46,351 – £150,000 will have to pay the higher rate of 40% tax. The additional rate of 45% still applies for earnings above £150,000. However, anyone earning more than £123,700 doesn’t get a Personal Allowance. For every £2 over £100,000, the Personal Allowance decreases from £11,850 by £1.

Pension Contributions Increase

With a higher Personal Allowance, you could be taking home a little extra each month. However, depending on your salary, it is not likely to be much. This is because the new increase in pension contributions will impact your income tax savings. This applies to employees who take part in an automatic enrolment pension scheme. With these workplace schemes, you will pay a percentage of your earnings towards your pension. Depending on how much you earn, your employer also contributes to your pension. The government will add money to your pension if you pay income tax and pension contributions. Previously, employees paid 1% and employers would match this. From April 2018, employers will pay 2% and employees must pay 3%. Next year this is due to rise again to 3% for employers and 5% for employees. The retirement age will increase to 68 by 2037.

Changes to Income Tax, Council Tax, and Pension Contributions in 2018

Council Tax Rises

It may be a mild annoyance that you can’t have the money now, but pension contributions are important. These savings will support you later in life when you eventually retire. However, an increase in another area will also affect your income. Whether you pay rent or a mortgage, you also have to pay Council Tax. This is particularly unfair for renters, as the value of the property determines the tax rate rather than the resident’s income. It is important to pay Council Tax as well, though, because it goes towards local council services. These include waste collection and recycling, maintenance of public spaces, social care, and the police and fire services. The largest increase in Council Tax in the last 14 years will still be a blow for many people. Government cuts to funding have left councils desperate to raise the money they need to provide public services.

What this means is that many taxpayers will face a Council Tax increase of 5.99% this year. The cap for a Council Tax hike without consulting residents is 2.99%. Authorities offering social care for adults are allowed a 3% precept on top of this. Councils do not have to hold a referendum if the increase is less than 6%. Councils can and will raise the tax by the maximum of 5.99% without needing resident approval. If they want to raise Council Tax by more than this, they will have had to hold a vote. Pembrokeshire will see the highest tax increase at 11.04%. Wiltshire residents will face a 6.41% rise in their Council Tax, while East Northamptonshire will pay 6.15% more this year. In Bradford, Council Tax bills will go up by 6.05%. Besides these, 32 councils across England will implement increases from 5.8% – 5.99%. This includes Wirral, St. Helens, and Brighton and Hove.

Be sure to check your Council Tax payments for the 2018-2019 tax year. The amount will depend on the property value tax band your home fits into. You can enter your postcode here to find out which tax band your property is in. These will usually range from lower value properties in Band A to higher value properties in Band D. Once you know your tax band, visit your council’s website to find out the local tax rate for your band. You could arrange to pay your Council Tax online as well.

How to get your UTR number if you have lost it

How to Get a UTR Number

When you register as self-employed with HMRC, they will assign a Unique Taxpayer Reference number to you. This 10-digit UTR number is unique to you or your company. You will need this number to manage your taxes, including self-assessment tax returns. This guide will assist you in finding your UTR number. You can call HMRC on 0844 453 0158 if you need any more help.

What If I’ve Lost My UTR Number?

Once you register with HMRC, they will normally include your UTR number in all correspondence. You should be able to find it on official documents and letters from HMRC. Look for the 10-digit number on your “welcome to self-assessment” (SA250) letter or notices to file tax returns. It will be on previous self-assessment tax returns as well as your statement of account and payment reminders. You should keep all of these documents and store them safely for your records. The number might say “tax reference” next to it on the documents. You will also be able to find your UTR number by logging into your online account with HMRC. If you can’t find your UTR number, then you should call the Self Assessment helpline on 0843 178 4198. HMRC can find it for you.

Why Do I Need a UTR Number?

HMRC uses UTR numbers to identify everything to do with your taxes. You need one if you earn any income outside of the PAYE scheme. To get a UTR number, you must register with HMRC as an individual, limited company, or other organization. Usually, if you do this, then you must report your own taxable income to HMRC. You can check online to see if you need to fill out a tax return yourself. If you do need to file a self-assessment tax return, you will be able to do this online. To use your online account, you will need to activate it using a code which HMRC will send to you by post. Receiving your UTR number and this code can take up to 20 days. This is why is it important to keep track of your taxes. You could end up paying penalty fines as well as overdue income tax.

How to Register for Self-Assessment

If you are new to self-assessment, you can register online. This will enrol you in the online service and generate your UTR number, which HMRC will send to you by post. They will also send a letter containing the activation code you will need to log in for the first time. HMRC usually sends these letters within 10 working days (or 21 working days if you are abroad). You can also register over the phone by calling the Self-Employed helpline on 0843 178 4180. It will take the same amount of time to receive your letters. To avoid fines, you must register by 5th October in your company’s second tax year. You have to register for Self Assessment and Class 2 National Insurance if you earned more than £1,000 from self-employment in the last tax year (between 6th and 5th April).

What Do I Need to Register?

Whether you apply for your UTR number online or by phone, you will need to provide evidence. HMRC will ask you for a series of details. You should make sure that you have all of these ready:

  • your name
  • your address
  • National Insurance number
  • date of birth
  • contact phone number and e-mail address
  • self-employment start date
  • the nature of your business
  • business address
  • business contact phone number
  • UTR number if you were previously Self-Assessed
  • business UTR number if you’re joining a partnership

You will also need to provide all of this information if you register by post. To register in this way, you must fill out an online form then download and print it. The form will include the address you need to send it to. This additional postage time means it will take even longer to receive your UTR number. When you have to file your self-assessment tax returns, you can also send them by post.

 

What you Need to Know About the New Tax Year

tax year 2018

In the UK, the tax year runs from April 6th until April 5th the following year. If you haven’t done so already, you will need to fill in a tax return. If you haven’t created a return yet, you will be notified by the HMRC that you need to do so. If you are unsure on if you need a tax return, you can check on the government website. In general, you will need to create a tax return if you are self-employed, or if you earn an income part time away from your full-time job.

Who needs to file a Tax Return?

Tax Returns are not just for those who are self-employed. You will need a tax return if you fall under any of the following:

  • Your taxable income is above £100,000
  • You have an income from abroad
  • If you have earned money from selling a second home, shares or other assets
  • You or your partner’s income exceeded £50 000 when claiming Child Benefit
  • Your income from any savings is £10,000 or more before tax

There are other factors that contribute to whether you will need to fill in a self-assessment for the HMRC. If you are still unsure of whether you’re eligible to file a tax return, call the HMRC Helpline, where a member of staff will be able to help you further. If you are in full-time employment and do not earn money outside of your contracted job, any tax you owe will be automatically deducted each month from your pay. You will not have to set this up, as it is automatically put in place by your employer. If you believe you are on the wrong tax code, if you have been paid too little tax, or if you believe that the HMRC owes you money from emergency tax, we suggest calling the HMRC Tax Code Contact Number.

Important Dates for the 2018 Tax Year

  • January 31st – The first payment of the tax year
  • April 5th – This is the end of the previous tax year, and means that if you need to file a return, that you should do so before this date. This might be different if you are newly self-employed, as you may only need to file a return the following April.
  • July 31st – The second payment of the year
  • October 5th – This is when you need to speak to the HMRC about your capital gain and further income aside from your regular income. You also need to register as self-employed by this date.
  • October 31st – You will need to send your paper tax return by this date. Sending your paper tax return after this date might mean that you are charged a penalty fee
  • December 31st – When filing a tax return online, this is the date in which it will need to be submitted.

How Will the Sugar Tax Affect the Public?

How Will the Sugar Tax Affect the Public

The start of the new tax year last week brings the Soft Drinks Industry Levy into effect. People more commonly know this levy as the buzzworthy Sugar Tax. There have been many debates about this tax, which aims to reduce the British public’s sugar consumption. At the moment, children and teenagers are consuming more than three times their daily recommended sugar intake. Adults are not doing much better, either. Excess sugar is a major contributor to obesity, heart disease, and type 2 diabetes. The sugar tax could help to prevent these health problems.

What is the Sugar Tax?

From 6th April 2018, drinks companies will have to pay taxes based on the amount of sugar in their drinks. Drinks with 5g of sugar or more per 100ml will have a tax charge of 18p per litre. More sugary drinks with 8g or more per 100ml will incur a tax charge of 24p per litre. However, fruit juices and drinks which contain at least 75% milk are exempt. Small companies producing less than 1 million litres a year can also avoid this tax. The money will go to the Department of Education, who can use it to fund school sports and activities which will improve public health.

The War on Sugar

Some people who feel that the government should stay out of their diets consider measures like this tax to be a war on sugar. Last year, Public Health England gave food companies the goal of cutting the sugar in their products by 20%. The time limit is the year 2020, but PHE expects a 5% sugar reduction in the first year. PHE will be publishing the results of this first year next month, in May. Participation in this scheme is voluntary, but no doubt PHE is going to name and shame companies in their report. A sugar tax on food items could follow the Soft Drinks Industry Levy.

Soft Drinks Industry Responses

Both the food companies and soft drinks companies trying to reduce their sugar content have the same options. The manufacturers can reduce the sugar by changing their recipes, or make portions smaller. The sugar tax applying only to soft drinks makes it much more critical for these companies to do something. If they still want to make a profit, they have to make consumers pay more for less. Otherwise, they will have to switch to artificial sweeteners and risk consumers not liking the new taste. The price of original Coke could rise by up to 50p per bottle, while the bottles will shrink in size. Original Pepsi is also not changing its sugar content. To avoid price increases, consumers will have to swap to Pepsi Max or Coke Zero. The good news is that plenty of drinks already reduced their sugar enough to avoid the impact of the levy. This includes Doctor Pepper, Fanta, Tango, Sprite, 7 Up, and Robinsons. Consumer responses will determine future changes.

What is the Sugar Tax

How Does the Sugar Tax Affect Me?

As mentioned, soft drinks companies can push the tax onto consumers. Customers like you will end up paying more money for less product if you still want a bottle of regular Coke or Pepsi. On the plus side, the sugar tax might encourage you and others to make healthier choices. Now that you’re aware of just how much sugar you could be consuming every day, you might pay more attention to your intake. As long as people don’t consume other high-sugar products instead, like milkshakes or cakes and chocolate, the nation could become healthier as a result of the sugar tax. According to PHE, reducing sugar consumption could save 80,000 lives and £15 billion for the NHS. One of those lives could be yours, or one of the lives saved by the extra money which can fund other areas of the NHS. The tax money will fund public health, particularly in schools. Whether you have children or not, this will have a positive effect on families and communities.

Will the Sugar Tax Actually Work?

The sugar tax could be the push that the soft drinks industry needs to adjust its formulas. While original Pepsi and Coke aren’t budging, many drinks brands are reformulating with less sugar or sugar substitutes. Sweeteners are generally healthier than sugar. The downside is that a product containing more than 10% could induce laxative effects. Sweeteners also have a different flavour than regular sugar. Those with high-sugar lifestyles are likely to have an addiction to that taste and the sugar hit. Rising prices might not put them off. Or they could continue their sugar habit by purchasing other drinks or even sugary foods like ice cream instead. The tax only applying to soft drinks might not be enough. What about milkshakes and coffees? Have you ever checked how much sugar is in your latte or frappuccino? A sugar tax for these drinks may be on the way. Taxes like this have seen success in other countries. Soft drink sales in Mexico dropped by 12%.

Possible Anti-Sugar Policies

It is likely that further policies will come into effect regarding sugar in food and drinks. Obesity is still rising, even as consumption of soft drinks has already been falling in recent years. When it comes to food, it is more difficult to reduce sugar when it is an essential ingredient. In desserts, sugar is necessary for the rise and texture as well as flavour. We will have to see how reduction methods pan out for the food industry. In the meantime, the government may decide to pursue other policies suggested by Public Health England. For example, shops may not be allowed to sell high-sugar food next to tills or at the end of aisles to prevent impulse buys. Sugary products may experience advertising restrictions. Food labels could feature health warnings for excess sugar, the way cigarette packets do for excess tobacco. This is not just scaremongering or taking things too far. Public health is important, and 44% of people are already trying to consume less sugar.

 

What’s My Tax Code?

What's My Tax Code

Are you having trouble understanding your tax code? Read this guide to find out what your tax code means and what you should do if it is wrong. If you need further assistance after reading, then call HMRC (HM Revenue and Customs) on 0843 178 7329. HMRC can help you to change your tax code. They can also help you with arranging any outstanding tax payments or refunds.

Tax Codes Explained

Your tax code will tell your employer or pension provider the amount of income tax you need to pay. Tax codes start with a number and have a letter at the end. The tax code indicates your tax-free Personal Allowance and your tax rate. HMRC will calculate this and inform your employer of your tax code. An example is 1150L, which is the tax code for most people with only one source of income. This code entitles you to the standard tax-free Personal Allowance of £11,500 a year. Check your tax code online, update your details, and see how much tax you must pay this year.

Letter
What It Means
L
Your Personal Allowance entitlement is the standard £11,500.
M
Marriage Allowance: you have 10% of your partner’s Personal Allowance.
N
Marriage Allowance: you gave your partner 10% of your Personal Allowance.
S
You are taxed according to the tax rates in Scotland.
T
Your tax code includes other calculations, such as a reduction for an estimated income above £100,000.
0T
You used up your Personal Allowance, or you started a new job and your employer can’t give you a tax code.
D0
HMRC taxes all of your income at the higher rate of 40% (used if you have more than one job or pension).
D1
HMRC taxes all of your income at the additional rate of 45% (used if you have more than one job or pension).
BR
HMRC taxes all of your income at the basic rate of 20% (used if you have more than one job or pension).
NT
You are not paying any tax on this income.

If your tax code begins with a K, this means that you have income worth more than the tax-free allowance which isn’t being taxed any other way. This could be because you are paying previous taxes through your wages or pension, or you receive taxable state benefits or company benefits.

Tax Rates Explained

One of these letter codes will replace the last digit of your tax-free Personal Allowance amount. This will then create your tax code. You need to make sure this tax code is accurate and you are paying tax at the correct rate for your income. The basic rate means that you have to pay 20% tax on earnings from £11,501 to £45,000. Next, the higher rate means that you need to pay 40% tax on earnings between £45,001 and £150,000. Finally, the additional rate means that you must pay 45% tax if you earn more than £150,000 a year. The tax rate applies to income over your tax-free Personal Allowance amount. Your Personal Allowance will be smaller than £11,500 if your income is over £100,000. It might be bigger if you claim Blind Person’s Allowance or Marriage Allowance.

Emergency Tax Codes

You might find that your tax code has W1 or M1 at the end instead of any of the letters above. Your payslip might show 1150 W1, 1150 M1, or 1150 X. These are emergency tax codes, which are temporary. You will pay tax on all income above the basic Personal Allowance with these codes. It is likely that you will be on an emergency tax code if you start a new job. You might have begun working for an employer after previous self-employment. If you start receiving company benefits or the State Pension, your tax code might change to an emergency one temporarily. You should provide details of your previous income to your employer or HMRC (such as a P45). HMRC will then correct this and ensure that you are now on the right tax code for your circumstances.

Wrong Tax Code

If you think your tax code is wrong, it is important to check this as quickly as possible. Being on the wrong tax code means that you could be paying too much or too little tax. The sooner you resolve this, the easier it will be for you to pay back any tax you owe. You will also be able to get back any money you overpaid due to being on the wrong code. Tell HMRC about any changes to your income or benefits which will affect your tax payments. You should also contact HMRC if you make any tax relief claims, or a Marriage Allowance claim. HMRC will adjust your code so that you are paying tax correctly throughout the year. They will let you know whenever your code changes. If you had been paying the wrong amount of tax, the adjustments will show on your next payslip.