feature
Other Candid sites

Candid Financial Advice
Financial advice for a fraction of the usual cost.

Compare Fund Platforms
The UK's only fund platform comparison site for private investors.

Calculator over 80 Calculators!

Covering almost all your money needs - use them.

Self-Employed Tax

Calculator Use this calculator to estimate how much income tax and national insurance is due on your self-employed taxable profit.

Random Jargon

Total Expense Ratio

TER. Shows an investment fund's total annual charges. Includes the annual management charge and all other annual costs paid by the fund.

| Printable version | A A A |


Author Photo

Budget 2011 - how will it affect individuals?

Tax | Income Tax

By Justin Modray, published 23 March 2011.
Helpful? 18

How will today's Budget affect you?

The Chancellor claims his Budget sets out to stimulate growth - something Britain badly needs right now (more on the this in another article to follow). He also claims it's fair for families, although I doubt many families will be jumping for joy following today's announcements.

Yes, basic rate taxpayers will save about £200 of income tax thanks to a higher personal allowance, but rising National Insurance brings bad news for higher earners and most families will lose out from the frozen child benefit and falling child tax credits previously announced. And with most excise duties rising by a high level of inflation, drowning your sorrows with cigarettes and alcohol could cost you quite a lot more. Plus from 2012 some allowances, including capitalgains tax, NI and ISAs will rise by the CPI measure of inflation rather than RPI, disadvantageous as CPI tends to be lower.

Let's take a look at the main changes affecting individuals (changes affecting business to follow).

Income Tax

As previously announced, the personal allowance will increase by £1,000 to £7,475 from 6 April 2011. This means basic rate taxpayers should be around £200 a year better off, but the threshold for higher rate tax will fall from £37,401 to £35,001 above the personal allowance.

Annual IncomeIncome Tax 2010/11Income Tax 2011/12Saving
£25,000 £3,705 £3,505 £+200
£50,000 £9,930 £10,010 -£80
Change in income tax bill from 6 April 2011.

The personal allowance will increase by £630 for those under 65 to £8,105 from 6 April 2012.

The 50% tax rate introduced last April is intended to be temporary, although no news for how long. And the Chancellor would like to merge income tax with national insurance to simplify the tax system, although this will probably take 'years'.

National Insurance

As previously announced, Class 1 & 4 NICs will increase by 1% from 6 April 2011, although the level of income at which these start will increase to protect those earning below £20,000.

Class 1 employee contributions will rise from 11% (on weekly earnings between £110-£844) to 12% (£139-£817) and from 1% (over £844) to 2% (over £817).

Class 4 self-employed contributions will rise from 8% (on annual profits between £5,715-£43,875) to 9% (£7,225-£42,475) and from 1% (above £43,875) to 2% (above £42,475).

Annual IncomeNI 2010/11NI 2011/12Change
£25,000 £2,121 £2,133 -£12
£50,000 £4,260 £4,381 -£121
Change in employee Class 4 NIC from 6 April 2011.

VAT

No change to the rate, but from 1 November 2011 the limit for VAT-free imports from outside the EU will fall from £18 to £15 - which might have a small impact on some of the Jersey/Guernsey based internet shopping sites.

Capital Gains Tax

Rates will remain unchanged at 18% and 28% while the annual allowance will increase to £10,600.

Inheritance tax

No change to the rate or nil rate band, but from 6 April 2012 the rate will fall from 40% to 36% where 10% or more of a net estate is left to charity.

Fuel

The planned 4p per litre rise in fuel duty this April will be postponed until January 2012 and the 2012 inflation increase will be delayed from April 2012 to August 2012. And duty will also fall by 1p per litre from 6pm tonight.

The 'escalator' tax that adds an extra 1p to fuel duty inflationary increases will, from tomorrow, be scrapped in favour of a fuel price 'stabiliser'. This means the extra 1p will not be applied if the oil price is above $75 a barrel. While the extra tax charged on profits from oil and gas production will rise from 20% to 32%, reverting to 20% should the oil price fall back below $75 per barrel.

Alcohol

Alcohol duty rates will increase by 2% above inflation (a 7.2% rise) on 28 March 2011. From October 2011 there'll be extra duty on high strength beers and reduced duty on low alcohol beers.

Beer (pint)Wine (bottle)Champagne (bottle)Spirits (bottle)
Typical Change +3p +12p +15p +45p
Typical increase in price from 28 March 2011.

Cigarettes

From 6pm tonight tobacco duty will rise by 2% above inflation, but the way it's charged will be biased more toward the duty per cigarette than on the sale price - hitting low cost cigarettes more heavily.

£4 per pack£5 per pack£6 per pack
Change +42p +35p +27p
Increase in price per pack of 20 cigarettes from 6pm 23 March 2011.

Vehicle Duty

To increase by inflation for vehicles in VED band D an above, adding between £5 and £25 to the cost of an annual tax disc.

Air Passenger Duty

The planned inflationary increase this April will be deferred until April 2012. It will however apply to private jets for the first time. The Government would like to move to a per plane tax instead, but has been advised it's not currently legal...

Company car fuel benefit charge

If you receive a company car and free fuel you'll pay some tax on the fuel benefit. The £18,000 multiplier figure currently used to calculate this will increase to £18,800 from 6 April 2011. What difference will it make? Probably an extra £45 of tax per year for basic rate taxpayers and £90 for higher rate based on a typical 2 litre diesel car.

HMRC Mileage allowance

If you use your own car for business you can claim reimbursement from your employer, at a rate of 40p per mile for the first 10,000 miles and 25p per mile thereafter, without hat being a taxable benefit. And if reimbursed for less than this you claim the residual mileage allowance against your tax bill. The 40p rate will increase to 45p per mile from 6 April 2011 - the first increase since 2002.

Child benefit

Will continue to remain frozen at £20.30 per week for the eldest child and £13.40 for each other child until April 2014.

Child tax credit

As per previous announcements, child tax credits will start to increase from 6 April 2011 for families with incomes of around £25,000 or less, but fall for everyone else - see full details in my previous article.

EIS/VCT

The rate of income tax relief given on the Enterprise Investment Scheme (EIS) will rise from 20% to 30% from 6 April 2011. While the amount that can be invested will double from £500,000 to £1 million from 6 April 2012.

EISs and Venture Capital trusts (VCTs) will also benefit from being able to invest in larger companies (changing from maximum of 50 employees and less than £7m of gross assets before investment to 250 employees and £15m of gross assets) and make bigger investments per company (changing to £10 million) from 6 April 2012.

Entrepreneurs Relief

The lifetime limit on gains that qualify for 'entrepreneurs' relief will double to £10 million from 6 April 2011. Capital gains tax is charged at just 10% on such gains.

Non-domicile taxation

From April 2012 the tax treatment of non-domiciled individuals tax resident in the UK. It looks like the current £30,000 annual 'remittance' charge will be dropped if such individuals are bringing foreign income or gains into the UK to invest in businesses, while the £30,000 charge could increase to £50,000 for those who've been UK resident for 12 years or more.

First-Time Buyers

First-time buyers of new build properties with a household income below £60,000 and a 5% deposit will be able to apply for a subsidised loan up to 20% of the property value. The loan would be interest-free for the first 5 years, 1.75% in year 6 then 1% above inflation thereafter.

Potholes

Local councils will receive £100 million towards pothole repairs - hurray!! Perhaps my local council will finally reimburse me for the burst tyre I suffered from a crater in one of their roads...

If you found this article helpful, please add your vote by clicking here.


Readers' Comments (0) - To post a comment please register or login .