George Osborne

Summer Budget 2015 – Key Tax Takeaways

The Summer Budget was announced last week and in this blog post we’ll take a look at only those changes which will affect ordinary taxpayers and SMEs.

In his opening remarks, the Chancellor of the Exchequer, George Osborne, promised:

A Budget … to keep moving us from a low wage, high tax, high welfare economy; to the higher wage, lower tax, lower welfare country.

So, taking each of those goals in turn …

Higher Minimum Wages

With regard to the higher wages promise, Osborne announced that there would be a new National Living Wage of £7.20 per hour from April 2016 for those aged over 25 and over, rising to more than £9 per hour by the year 2020.

Lower Tax

With regard to the lower tax promise, the Personal Allowance (the amount people can earn before paying any tax) will increase – as anticipated – from £10,600 in the financial year 2015-16 to £11,000 in 2016-17. A longer term plan is to increase this still further to £12,500 by 2020. The ultimate ambition is pass a law to make sure that those working 30 hours a week and earning the National Minimum Wage will pay no tax whatsoever, although clearly this will need further clarification in due course.

Dividend tax will also be reformed. Here the existing dividend tax credit (this reduces tax paid on dividends from shares) will be replaced by a new £5,000 tax-free allowance on income from shares from April 2016 and this will be available to all taxpayers. To offset the cost of this to the Exchequer, those with more significant dividend income will see an increase in the tax rate they pay.

Inheritance tax will also be subject to changes from 2017-18. The idea is to allow individuals to each have a ‘family home allowance’ which they can pass on to their children or grandchildren, tax-free, when they die. This allowance will be added to the existing Inheritance Tax threshold currently set at £325k and will potentially allow property up to the value of £1m to be passed down from 2020-21 (see table below). For those with estates valued over £2m the allowance will be gradually withdrawn.

This is how the effective Inheritance Tax thresholds will look in 2020-21: Read more

George Osborne

Highlights from the Chancellor’s Budget, 18 March 2015

Along with some encouraging news about the UK economy, some interesting new measures were announced in the Chancellor’s Budget yesterday and below we highlight those which we feel will directly impact the majority of UK taxpayers:

  • As widely forecast, the tax-free allowance will increase. The amount people can earn before paying tax will rise to £10,800 from 2016-17 and then to £11,000 from 2017-18. At the same points in time, higher earners will also receive a two stage increase to the threshold at which they start to pay a 40% rate of tax, with the threshold increasing to £43,300 by 2017-18.
  • The Chancellor also announced a brand new Personal Savings Allowance whereby the first £1,000 of interest (£500 for higher rate taxpayers) will be tax tree. This new allowance will kick in from April 2016 and will take 95% of taxpayers out of savings tax completely. (Fact Sheet available here).
  • Another new scheme announced was the introduction of a new ‘Help to Buy ISA’ aimed at prospective first time buyers. This fairly generous scheme means that the Government will chip in up to £50 extra per month (up to a ceiling of £3,000) when an eligible saver saves up to £200 per month towards their first home. (Fact Sheet available here).
  • In another ISA reform, savers will now be able to withdraw money from a new Flexible ISA and deposit it back later in the same financial year without losing any of their usual ISA tax benefits. £15,240 will be able to be put into this re-styled savings vehicle. Read more

Changes to Minimum Wage from 1st October

As explained in a previous blog post, Minimum Wage is defined as the lowest wage payable to most employees as fixed by law or union agreement. 

As from 01/10/09 new rates came in place:

•£5.80 – as the main rate for workers aged 22 and over;
•£4.83 – the 18-21 rate;
•£3.57 – the 16-17 rate for workers above school leaving age but under 18.

A very important change from 01/10/09 is that fact that employers running bars and restaurants can no longer be allowed to use tips to top up pay up to the minimum wage.

Workers will now be paid at least the National Minimum Wage and be paid their tips on top of this.

If your employer is paying you less than the Minimum Wage entitlement you must report this by filing an online complaint form.

If you have any queries regarding Minimum Wage or any other tax related question, please feel free to ring us on 020 8761 8000 or come to see us in our office in Tulse Hill on the South Circular.

National Minimum Wage

Minimum Wage is defined as the lowest wage payable to most employees as fixed by law or union agreement.
There are three different rates of Minimum Wage:
Adults’ rate for workers aged 22 and over
Development rate for those aged between 18 and 21
Young people’s rate for those older than school leaving age and younger than 18; you’re under school leaving age until the end of summer term of the school year in which you turn 16.
Almost everyone who works in the UK is legally entitled to be paid the National Minimum Wage.
However, you are not entitled to receive the minimum wage if you are in one of the following categories: a worker under school leaving age, genuinely self-employed,company director, prisoner, share fisherman, apprentice, an au pair,in the armed services or a voluntary worker.
Every year National Minimum Wage rates are being reviewed and if any changes take place they come in force from 1st of October. From 1st October 2008, National Minimum Wage increased from £5.52 to £5.73 an hour for adult workers.
The statutory hourly rate for 18 to 22-year-olds has also risen from £4.60 to £4.77, and for 16 and 17-year-olds has lifted from £3.40 to £3.53. Also the accommodation offset rate increased from £4.30(per day) to £4.46(per day).
It is worth mentioning the agricultural workers as different rates apply to them.
Also Piece workers (known as Output workers) are paid by the number of items they produce or tasks they perform rather than the number of hours they work. Piece workers must be paid at least the minimum wage for every hour they work or a fair piece rate for each piece produced or task performed.
Commission workers are paid entirely or partly on the basis of sales made. These ‘commission workers’ must be paid at least the national minimum wage.
Trainees and staff on probation are entitled to be paid at least the national minimum wage.
Very important to know is that the government is planning to introduce new regulations in April that will impose a £5,000 automatic fine on any employer failing to pay the minimum rate.
Serious cases could lead to a prosecution in a Crown Court where there is no limit to the fine that could be set.
If you suspect your employer is paying you less than the Minimum Wage than Taxfile‘s tax accountants in South London and Exeter recommend you downloading this form in order to make a complaint to the HMRC.