News

**MSE Alana** · 07-04-2009, 4:36 PM

New tax year (09/10). The good, the bad and what to do

The 2009/10 tax year began on Monday, and it's all change. Bizarrely though, this year’s Budget is after the start of the tax year, so changes may be backdated (last year's figures in brackets).

The boosts to income ...

Personal allowance UP! Every man, woman and child can now earn £6,475 (was £6,035) before paying income tax. For those aged 65-74, it’s £9,490 (£9,030) and for over-75s, £9,640 (£9,180) (though see below for the catch for over-65s).

Basic rate tax threshold UP. You now pay 20% tax on the first £37,400 (£34,800) over the personal allowance, meaning under 65s only hit the higher 40% rate at £43,875(£40,835).

National insurance start point UP. You now need to earn £110 per week (£105) before paying for NI, usually 11%.

State pension UP. It's £95.25 (was £90.70) a week for a single person.

Pension credit UP. The minimum guaranteed income's now £130 for single pensioners (£124.05), and £198.45 for couples (£189.35). See the State Pension guide.

New Health in Pregnancy Grant. All pregnant women will get a non-means-tested £190 in their 25th week of pregnancy. More in the Pregnancy Grant discussion.

Inheritance tax threshold UP. The amount you can leave without it being taxed is now £325,000 (£312,000). See the Inheritance Tax guide.

And the hits ...

Fiscal drag. This isn’t Alistair Darling in women’s clothes; it’s that increased allowances aren’t as generous as they seem. If wages and/or inflation increase by more than the allowances, effectively the government gets more tax revenue anyway, and the real value of the increase is less.

National insurance upper earnings UP. Now you will pay 11% NI on earnings up to £43,888 a year (£40,040) and 1% on everything after that.

ISA limits. No change. Yet again, the amount savable tax-free hasn’t increased with inflation or earnings. See the Top Cash ISAs guide.

Child Tax Credit family element. No change. Many families get this, and the freeze at £545 is an effective cut. Yet the means-tested element has increased to £2,235. See the Benefits Check-Up guide.
Over 65s taxed more than it seems. Above, over-65s new personal allowance rates are stated correctly (£9,490 for 65-74s and £9,640 for over-75s). Yet if you earn over £22,900, then for every extra £2 you earn, you lose £1 of personal allowance, until it's the same as under 65s

Just click post reply to add your comments

kenpitfield · 08-04-2009, 9:58 AM

Don't forget that the additional personal allowance for over 65's is effectively means tested. If you have a total income, including interest on savings, in excess of £22,900 per annum, the additional personal allowance is reduced by £1 for every £2 above this excess, effectively taxing pensioners @ 30%. I don't think this is fair and it doesn't seem to be widely understood.

noyk · 08-04-2009, 11:07 AM

This link says basic rate/higher rate is different from that described in the newsletter.

http://www.direct.gov.uk/en/Nl1/Newsroom/DG_177240

i.e. 20% between £6,475 - £37,400 and 40% above £37,400

Please clarify, thanks.

**MSE Alana** · 08-04-2009, 1:11 PM

The information we have put in the email is correct, you get the first £6,475 tax free and the next £37,400 you earn is taxed at 20% (so under 65s will only pay the higher 40% rate at £43,875).

We have contacted Directgov, who have updated their information.

Many thanks for pointing it out.

L Tel · 08-04-2009, 3:14 PM

Regarding NI contribs, is the £110 threshold the same as the tax free allowance? i.e. if you earn £500 pw do you pay 11% on all £500 or just £390?

pfantasmes · 09-04-2009, 2:13 AM

Quote:

Originally Posted by L Tel

Regarding NI contribs, is the £110 threshold the same as the tax free allowance? i.e. if you earn £500 pw do you pay 11% on all £500 or just £390?

The first £110.00 does not attract NI so you'll only pay on the £390.00

The revenue has also introduced a new threshold for people who are contracted out of SERPS, called the accrual point. £770.00 per week. Above this point up to the upper earnings limit you will pay 11% instead of the 9.4%

First £110 - nil
Next £660 - 9.4%
Next £74.00 - 11%
Above £844.00 - 1%

From what I understand this accrual point will not increase year on year but the upper earnings limit will continue to be indexed. Resulting in a larger proportion of earnings being charged at the non contracted out 11%.

tiggersue · 09-04-2009, 7:03 AM

Hi, not sure if I am on the correct thread but will ask away in hopes that I am. Mt daughter who was 17 at the time and working part time at McDonalds and going to college had a load of tax taken from her pay. She only lasted a few months at the job. When I rang the Inland Revenue to ask about getting her tax back they said there was no need to claim it as she would automatically receive it in this new tax year. does this sound correct? Many thanks in advance for any help!!!

pfantasmes · 09-04-2009, 10:22 AM

Quote:

Originally Posted by tiggersue

Hi, not sure if I am on the correct thread but will ask away in hopes that I am. Mt daughter who was 17 at the time and working part time at McDonalds and going to college had a load of tax taken from her pay. She only lasted a few months at the job. When I rang the Inland Revenue to ask about getting her tax back they said there was no need to claim it as she would automatically receive it in this new tax year. does this sound correct? Many thanks in advance for any help!!!

She will automatically get a tax refund, if owed. However they can take their time over it. If you have time get your daughter to take her P45's to a local revenue office and request they look into her tax record. This kick starts the process.

tiggersue · 09-04-2009, 10:32 AM

Many thanks, I will get her to do as you suggest after the Easter Holiday! Have a good one!!

drkofglos · 09-04-2009, 1:14 PM

It states in the newsletter

National insurance upper earnings UP. Now you will pay 11% NI on earnings up to £43,888 a year (£40,040) and 1% on everything after that.

Is the 1% a typo ?

ladymacbeth_uk · 11-04-2009, 2:38 PM

Hello,
Great news about the bost to income. Can we expect to see this in our April pay or can companies take their time e.g May or even June so long as they back-date? I get paid on the 23rd of ech month.

Thanks

sharnad · 11-04-2009, 6:01 PM

Quote:

Originally Posted by drkofglos

It states in the newsletter

National insurance upper earnings UP. Now you will pay 11% NI on earnings up to £43,888 a year (£40,040) and 1% on everything after that.

Is the 1% a typo ?

No its not a typo

pfantasmes · 14-04-2009, 10:46 PM

Quote:

Originally Posted by ladymacbeth_uk

Hello,
Great news about the bost to income. Can we expect to see this in our April pay or can companies take their time e.g May or even June so long as they back-date? I get paid on the 23rd of ech month.

Thanks

You should get the increases in your 1st pay after 6th April. If a company does take longer (which they should not as companies have know about these new rates for a long time) it will have to be back dated.

scottmcgarvey · 15-04-2009, 4:36 AM

The "catch" was there in the Inland Revenue when I first started there in 1988...

As far as I know, has never been taken away.

colinfw · 15-04-2009, 9:16 AM

Could you clarify how the savings interest is calculated. Is it actual interest received after 20% deducted tax or some revenue determined interest rate. What about ISA interest, is this interest taken into account when applying the rules.
Thanks
Colin

Mikeyorks · 15-04-2009, 11:33 AM

It's the gross taxable interest. So it excludes ISAs .... but is the gross interest received on your taxable accounts.

ncm · 15-04-2009, 12:24 PM

When does the 65-70 Tax allowance start

* Beginning of the tax year in which your 65th Birthday occurs

* From the actual date of your Birthday

* The tax year following your 65th Birthday

boobbby · 15-04-2009, 1:30 PM

Quote:

Originally Posted by ncm

When does the 65-70 Tax allowance start

* Beginning of the tax year in which your 65th Birthday occurs

* From the actual date of your Birthday

* The tax year following your 65th Birthday

It starts from the 5th April if you are 64 in the proceeding tax year. i.e. if you are 64 on the 3 April you get the higher allowance from the 5th April. If you are 64 on the 6th April or later you will not get the higher allowance until the beginning of the next tax year !! (earning may reduce the higher allowance)

wg.taylor · 15-04-2009, 1:48 PM

Quote:

Originally Posted by kenpitfield

Don't forget that the additional personal allowance for over 65's is effectively means tested. If you have a total income, including interest on savings, in excess of £22,900 per annum, the additional personal allowance is reduced by £1 for every £2 above this excess, effectively taxing pensioners @ 30%. I don't think this is fair and it doesn't seem to be widely understood.

I pointed this out last year in correspondence with my tax office, saying that it was double taxation to have net interest (ie what was left after having already paid income tax) taken into account to reduce my over 65 personal allowance. The reply was terse!

southcoastexpress · 15-04-2009, 3:23 PM

The Revenue(HMRC) are tjhe people who operate settled policy on Personal Allowances ;they don't decide it.The politicians are the people who decide the rules so it is to your MP and the Chancellor that you should be addressing your point of view.Tnat way you and others can bring influence to bear and hopefully lead to a change in policy to correct mean tricks /injustices like this one.