New tax and benefit changes come into effect today, affecting families in particular, who may be as much as £1,700 a year worse off according to Labour, who have labelled today ‘Black Wednesday’.
The tax changes will, however, be good news for lower earners. An increase of £1,000 to the personal allowance, means you can now earn £7,475 before paying income tax.
It will indeed be Black Wednesday for those earning over £35,000 though – the new threshold at which the 40% tax rate is applied.
National Insurance has also gone up by 1%, although lower earners will again be exempt.
Changes to the benefits system mean that benefit increases will now be linked to CPI inflation rather than RPI inflation, reducing social welfare payments by £1.8bn.
It has been estimated that almost half a million parents will lose an average of £436 a year in child care benefits.
According to Labour, today’s 44 tax and benefit changes will cost a family of five, where each parent earns £26,000, more than £1,700 a year.
“Today will be a Black Wednesday for millions of families across Britain,” said shadow chancellor Ed Balls.
“For many families, the first time they realise just how hard these changes will hit them will be in their pay packets over the coming weeks.”
Trade unions are also warning of tough times ahead for low-income families as a three-year freeze and other changes to Working Tax Credits come into effect.
According to the TUC, a couple earning £40,000 who pay £400 a week in childcare for two children will now be £2,500 worse off.
“With wages failing to keep up with the cost of living and the VAT rise biting into household budgets, these tax credit cuts could not have come at a worse time for families,” TUC general secretary Brendan Barber said.
However, the Treasury hit defended today’s tax and benefit changes, saying that 80% of tax payers will be better off thanks to a rise in the income tax threshold.
In other changes, oil prices hit an all-time high yesterday, meaning that despite the 1p fuel duty cut announced in the budget two weeks ago, the average price of petrol is now 133.55p a litre.
How will the tax changes affect me?
The new tax year begins today (April 6 2011) and runs until April 5 2012.
Income tax rates from April 6 2011
There is a £1,000 increase in the basic personal allowance for income tax for those aged under 65 from £6,475 to £7,475 – this is the amount you can earn before you are taxed.
Rate % Bandwidth
Basic Rate 20% £1 to £35,000
Higher Rate 40% £35,001 to £150,000
Additional Rate 50% £150,001 and above
The new threshold for PAYE is £144 per week (£623 per month).The new emergency code is 747L.
National Insurance changes
National Insurance rates have increased by 1%.
Employees now pay a primary rate of class 1 NIC of 12% (up from 11%) and the self-employed pay class 4 NIC of 9% (up from 8%).
This increase is offset for those on lower incomes by increases by the lower limits you can earn before you start to pay them – £139 a week for employees and annual profits of £7,225 for the self-employed.
Students working only in holiday time who earn less than their personal allowance over the whole tax year (£6,475 for 2010/11 and £7,475 for 2011/12), can ask their employer to be paid without tax being taken off their wages.
Employers should complete a form P38(S).
If you have a student loan, have finished your course and are now earning more than £15,000 a year you may have to begin paying back your student loan from April 6.
For more information on today’s tax and beenfit changes, visit hmrc.gov.uk.