why does +£600 personal allowance not equal £50 in the bank / month? (2015 tax)

AreBee

Hi,

Every year when I hear the personal allowance is to increase I get excited thinking I'll be getting around £50 a month extra. I'm not very good with numbers, especially tax and I can't seem to make this work.

I read this post on a site I use a lot:
h t t p : / / blog.thesalarycalculator.co.uk/paye/april-2015-tax-rates-applied/

here's the content of the post:

From 6th April 2015, new tax thresholds and personal allowances will apply, and The Salary Calculator has been updated with these new values.

Although the default results are still for the current tax year, when you enter your details into the take home pay calculator, you will see a summary line at the bottom of the results showing how things will change from 6th April. Click on this line and you can see a side-by-side comparison of the 2014/15 and 2015/16 tax years, and a breakdown of how it will affect your take home pay. You can also choose 2015/16 in the tax year drop-down in the normal take home calculator.

The main change this year is an increase in the default personal allowance from £10,000 to £10,600 – which means you can earn an extra £600 without paying any income tax. The default tax code will change from 1000L to 1060L (if your tax code is different, it will probably change for next year to reflect the larger personal allowance). The Student Loan repayment threshold has also increased from £16,910 to £17,335, potentially saving those who are repaying their loans £38.25 per month (although this will also mean it takes longer to repay your loan).

It looks and sounds like you will be £600 / year better off - why is this not the case when it's worked out? What I figured should be £50 / month is more like £14. I'm on student load plan #1. having £50 less taxable income per month sounds to me like £50 would be just forwarded straight tot he take-home figure.

here's an example image (not my salary, just an average sounding figure) I can't post links or images so I've broken the link up a little

http: //i.imgur. com/JJzUKin.png

the new 2015 rates are in the boxes, current 2014 rates are not.

Can anyone be helpful enough to explain this as I'm obviously confused! I'm sure it's very simple to whoever knows the answer!

Thanks!


(by the way I scanned the forums for a suitable place to post thought this was my best bet)

TadleyBaggie

Simple, the £600 is not extra money in your pocket, it's just £600 you don't have to pay tax on. So if you are a 20% tax payer you end up about £120 better off or £10 a month.

Ed-1

AreBee wrote: »

Hi,

Every year when I hear the personal allowance is to increase I get excited thinking I'll be getting around £50 a month extra. I'm not very good with numbers, especially tax and I can't seem to make this work.

I read this post on a site I use a lot:
h t t p : / / blog.thesalarycalculator.co.uk/paye/april-2015-tax-rates-applied/

here's the content of the post:


It looks and sounds like you will be £600 / year better off - why is this not the case when it's worked out? What I figured should be £50 / month is more like £14. I'm on student load plan #1. having £50 less taxable income per month sounds to me like £50 would be just forwarded straight tot he take-home figure.

here's an example image (not my salary, just an average sounding figure) I can't post links or images so I've broken the link up a little

http: //i.imgur. com/JJzUKin.png

the new 2015 rates are in the boxes, current 2014 rates are not.

Can anyone be helpful enough to explain this as I'm obviously confused! I'm sure it's very simple to whoever knows the answer!

Thanks!


(by the way I scanned the forums for a suitable place to post thought this was my best bet)

If the personal allowance increases by £600 you can earn an extra £600 a year (equivalent to £600 divided by 12 = £50 a month) without paying income tax. Income tax would've been taken at 20% on that £600 so your total tax saving for the year is 20% of £600 = £120 (equivalent to £10 a month).

Regarding the student loan threshold increase, that text is wrong - if the annual threshold for plan 1 increases from £16910 to £17335 then that is an increase of £425 and repayments are taken at 9% of income above the threshold so your student loan repayment saving for the year is 9% of £425 = £38 (equivalent to around £3 a month).

Zanderman

AreBee wrote: »

It looks and sounds like you will be £600 / year better off - why is this not the case when it's worked out?

Any extra £600 is in your non-taxable allowance.

So you won't be taxed on that extra £600.

You don't get an extra £600, you just don't pay the tax you would have paid on it.

Tax on £600, at 20% would be £120. So you'd be £120 pa better off.

AreBee

Thanks a lot everyone - it's making more sense worded lke that - I still don't feel that daft for thinking it would be a straight £600 bonus as in many places it's worded as if it is (which is why I asked) - but I see how it works now.

I'm glad you spotted the student loan part was incorrect too as I was looking for that extra £38/m too! looks like I was genuinly mislead there.

it's a nice little bit of pocket money but not exactly going to be rolling in it!

Thanks again

ceredigion

university educated:eek:

planteria

indeed. it's just the threshold that increased, and is increasing further. i think it's great:T

Scarpacci

For what it's worth, you obviously also need to earn an income over the previous threshold to have any benefit from it being raised. Each increase therefore helps fewer people. One of the reasons some groups aren't in favour of raising the threshold further is that it's now only helping the (relatively) higher earning end of low income people.

It's less progressive each time it's done, especially when there's the NI threshold which is still stubbornly low that could be raised.

mgdavid

ceredigion wrote: »

university educated:eek:

and couldn't see the 'Tax' section :wall:

planteria

Scarpacci wrote: »

For what it's worth, you obviously also need to earn an income over the previous threshold to have any benefit from it being raised. Each increase therefore helps fewer people. One of the reasons some groups aren't in favour of raising the threshold further is that it's now only helping the (relatively) higher earning end of low income people.

true, but most people in full time employment have benefited, and will continue to do so.. and the increased retained pay cycles through the economy.