All posts by Marian

Marian worked in pensions/finance for 12 years including gaining the Associateship of the Pensions Management Institute. She has a keen interest in finance, taxation and property and spends time reasearching and writing articles on these topics.
Personal Allowance News, Tax Allowances, UK Budget

2019 Personal Allowance

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Philip Hammond delivers the 2019 Budget

In the 2019 Budget today Philip Hammond announced changes to the personal allowance for 2019/20.

It had previously been announced that the plan was to increase the tax free personal allowance to £12,500 and the higher rate allowance threshold to £50,000 from April 2020.

There had been rumours prior to the budget that the Chancellor would have to delay the increase in the personal allowance in order to fund increases to the NHS.

Mr Hammond commented on this himself and said that he had been advised that the least painful way to add some funding to the NHS promises was to do exactly that.

However, he also said that this was not his idea of ending austerity (which was part of the budget headlines) and so he would not be doing that. In fact, he said, he would actually bring forward the increases in the personal allowance levels by a year and implement those increases from April 2019 instead of April 2020.

So the personal allowance from April 2019 will be £12,500 which is increased from £11,850 for 2018/19, an increase of £650 and a saving of £130 a year for basic rate taxpayers.

National Insurance

Class 2 NI Change Shelved

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In 2016 the government announced a change to the calculation of self-employed NI contributions. This change meant that Class 2 NI contributions were going to be scrapped and other arrangements were put into effect, particularly for lower earning self-employed people.

You can find further details of the proposed change here.

The change to Class 2 NI was subsequently postponed and was going to be introduced in the tax year 2018/19.

However, it has now been announced that the scrapping of these NI contributions has been cancelled and the current arrangements will remain in place for the foreseeable future.

The current rates for Self Employed National Insurance contributions are as follows:

Class Rate for tax year 2018 to 2019
Class 2 £2.95 a week
Class 4 9% on profits between £8,424 and £46,350
2% on profits over £46,350
Paying Tax, Tax Codes

What Does Tax Code NT Mean?

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Tax Code NT

tax code NTEach person in in the UK is assigned a tax code for each tax year, whether that be at the beginning of the tax year or further into it, when a tax code may be changed.

In fact you may be given different tax codes for different earnings sources.

There are various different codes – some have numbers and letters and some just consist of a letter or letters and NT is one of those.

The tax code NT means essentially that no tax is due on those earnings.  The company/entity paying you will have been instructed not to deduct tax from the earnings by HMRC and they may or may not know the reason for this.

There may be different reasons for being given this tax code and if you have this tax code then it may be because of your own personal circumstances so you can always call the tax office to find out why if you are unsure.

As an example, NT can be used as a tax code for people who have non-resident status or for people whose income would be classed as self-employed and hence taxed on their own tax return. It may also be applied in some cases for Armed Forces pensions (but not all situations).

High Earners, Paying Tax, Tax Rates

How Much do I Need to Earn to Pay 40% Tax?

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How much do I need to earn to pay 40% tax?Currently the higher rate of tax for those who earn a certain amount stands at 40%. So you may wonder how much do I need to earn to pay 40% tax?

Tax Code

The way to work out this is to firstly take a note of your tax code which will dictate how much personal allowance you have for that tax year. For the year 2018/19 the standard personal allowance is £11,850 which will give you a tax code of 1185L.

If you don’t have that tax code then you need to take the tax code you have and multiply it by 10 to give you your personal allowance.

20% Tax Band

Next add on to that figure the amount that you can earn on which you pay 20% tax. You can see the current rates for the relevant tax years here, but for 2018/19 the 20% tax band amounts to £34,500.

So you add your personal allowance (let’s say you get the full rate of £11,850) to the 20% tax band (£34,500) and you get a total figure of £46,350.

This means that once your earnings are over £46,350 for the tax year (in this example 2018/19) then you will start paying tax on those earnings at the rate of 40%.

Note that you only pay tax at 40% on earning over that figure, not on the whole amount.

Additional Tax Rate

In addition to that there is a 45% tax rate on earnings over £150,000 (at which point you don’t get a personal allowance) so that would be the point at which you would start paying tax at what is know as the additional rate.

Obviously everyone’s circumstances are different and you should also take account of other benefits in kind and additional earnings.

This is just to give you a guide number of when to think about your entry into a higher tax bracket and what that could mean to you.

It may be worth speaking to a financial adviser to get any advice you need to take account of this additional tax rate.

Tax Codes

What Does Tax Code BR Mean?

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BR tax codeIf you have been given a tax code notice and you are wondering ‘what does tax code BR mean?’ then here is an explanation.

The tax code letter BR stands for Basic Rate. This means that any earnings that you get under the employment (or pension) that has that tax code (and you may have different tax codes for different sources of income), will be subject to tax at the basic rate.

For the tax year 2018/19 the basic rate of tax is 20%.

Tax codes often have a number before them and then a letter but in this instance, as the number refers to how much personal allowance you have, there is no number, just the letters BR.

Normally you will be given a personal allowance (£11,850 for 2018/19) which means that you can earn that amount of money over the tax year without being charged tax on it.

So, with a tax code of BR, that personal allowance will not be applied to the earnings from that source. It may well be that your personal allowance has been used up elsewhere (another job for instance or another pension source) so you cannot also apply it to this source of income.

So if for example you earn £1600 in a month then you will be taxed £320 (20% of £1600) for that month.

In fact even if you earn enough that your earnings would normally be taxed at a higher rate then you will still be taxed at 20% on this tax code and any adjustments will either need to be made once the tax code is changed or through your tax return.

The tax code BR differs from the code 0T in that if you are on 0T you will be charged higher rate tax if your earnings enter into that bracket.

It is possible that you have been given this tax code incorrectly (if you have been given it and you don’t have any other source of income for example). In which case you should get in contact with HMRC as soon as possible so that you don’t end up paying too much tax.

You can call HMRC on 0300 200 3300.

Tax Codes

Tax Code 0T

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Everyone who has a tax code will notice that it usually has a number and letter as part of the code.

Sometimes the tax code that you will be given for a particular job or income stream may be 0T (note that this is a zero not OT).

The zero denotes that you will not be given any personal allowance for the income that has been assigned the UK tax code 0T.

This may be because you have used up your personal allowance elsewhere, or perhaps you have started a new job and your employer does not have enough information for your tax code as yet.

The 0T tax code means that all of your income will be taxed for that income stream. The tax rate depends on how much you earn from that work/pension as to whether you will pay basic rate tax on the earnings or if you earn enough from that job (if indeed it is employment) to pay higher rate tax.

It is possible that a 0T tax code will be corrected down the line, as it is often used as an emergency measure, so if you believe that this is not correct it may be worth contacting the inland revenue to check that they have all of the correct information for you.

Once the Inland Revenue have all the up to date information they can send through the correct tax code to your employer and you may start to pay less tax than you would do on a 0T tax code.

If the tax code is corrected within the tax year then it is likely that you will get an adjustment to your tax once your employer has the correct code and that may involve effectively refunding tax from when you were on the UK tax code 0T by reducing the amount payable once the code has changed.

If it is near the end of the tax year when you are given the 0T tax code and it is not corrected before the end of the tax year (assuming it is wrong) you may need to reclaim overpaid tax from the Revenue.

In any case you can contact the Inland Revenue on 0300 200 3300.

 

 

Tax Codes

Tax Codes 2018/19

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It is generally the case that UK taxpayers will be issued with a new tax code each year. Tax codes are issued to individuals and their employers so that the employer knows how much tax they should deduct from the employee’s earnings each week or month.

Standard tax code for 2018/19

The most common  tax code for those with simple financial situations in 2018/19 (for example, having only one job, no tax owing from previous years, no other employee benefits etc) is 1185L.

This standard tax code means that you are entitled to the UK personal allowance of £11,850 for the year and therefore that is the amount that you can earn before any tax is deducted.

But it may be the case that you have a different number for your tax code or perhaps your code has another letter at the end (instead of L).

If this is the case then one or more of the following situations may apply to you which may affect your tax code (and these are just some examples):

  • you have earnings from another job
  • you receive benefits in kind (e.g. company car)
  • you owe tax from previous years
  • you also have pension income
  • you have or you receive a transfer of the marriage allowance
  • you have earnings over £100k for the tax year
Confused about your tax code?

If you can’t figure it out why you  have a particular tax code, you will probably need to speak to the Inland Revenue to check that you have the right tax code and will not be paying too little (or indeed too much) tax in 2018/19. The number to call for tax code queries is 0300 200 3300.

Or you may find it easier to check your tax code online which you can here do if you have a Government gateway ID.

Tax code letters

So the letters at the end of the tax code may also give you an indication of what your code is all about.

There are a couple of new tax codes that have been introduced recently which take account of the new transferable marriage allowance – those are the letter M if you have received a transfer of the marriage allowance and the letter N if you have given a up part of your allowance. You can find more information on those letters here.

You can check out a full list of the tax code letters and what they mean on the Inland Revenue website.

Capital Gains Tax, Tax Allowances

Capital Gains Tax 2018/19

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Capital Gains Tax Allowance 2018/19This is a summary of the Capital Gains Tax Allowance for 2018/19.

Capital Gains Tax (CGT) is payable when you sell something and make a profit on it as well as when you give something away that would otherwise be included in CGT.

Some things are not liable for CGT however and you should check the rules with HMRC for your individual circumstances.

The amount of CGT that is due depends on the profit you make (i.e. the amount you sell it for less the amount you paid for it) and is only payable if it exceeds the CGT allowance for the tax year in which you make the gain.

The CGT Allowance for 2018/19 is £11,700.

This amount has been increased from 2017/18 when the rate was £11,300.

Examples of when Capital Gains Tax is due could be:

  • On the sale of a second property
  • On the disposal of personal assets that are worth more than £6,000 (although this does not include your car)
  • On the sale of shares (that are not held in an ISA)

Obviously if your profits from selling these types of goods/assets is below the allowance then no tax is payable.

Personal Allowance News, UK Budget

Personal Allowance 2018/19

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budget 2017 uk tax allowances
Philip Hammond delivered his 2017 Budget today.

Budget 2017

The Chancellor Philip Hammond has announced in his 2017 Budget today that the UK personal allowance 2018/19 will increase with effect from April 2018 to £11,850.

This is the amount that people can earn before having to pay any tax on earnings above that level.

An increase of £350 in the personal allowance means an extra £70 a year (or £5.83 a month) in the pocket of a basic rate tax payer.

Currently the personal allowance sits at £11,500 for the year 2017/18 and so this is an increase of 3.04%.

The eventual aim that has been proposed by the government is to get the personal allowance to £12,500 a year.

The higher rate tax bracket will also be increase from £45,000 to £46,350. The aim is for this to be increased eventually to £50,000.

You can find all of the current personal allowance rates in the tables on this page (these will be updated as they are announced).

Also announced in the Budget today was the increase in the National Minimum Wage of 4.4%, rising from £7.50 an hour to £7.83 an hour with effect from April 2018.

October 2018 Update

Check out the change to the personal allowance for 2019/2020 here.

Tax Codes

Tax Code Letters M and N

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Transfer of the personal Allowance for Married Couples and Civil Partnerships

If you have the tax code letter M or N after the number in your tax code notification then these two letters are linked as it means that you  have either transferred or have received a transfer of the 10% personal allowance to/from your partner.

The marriage transfer allowance was introduced so that those who did not pay tax on their earnings up to the full personal allowance, could transfer 10% of their allowance to their partner (as long as their partner was only paying basic rate tax).

So, for example if your tax code for 2018/19 is 1304M that means that your partner has transferred 10% of their personal allowance to you (amounting to £1,185).

This 10% is added on to your personal allowance of £11,850, giving you a total personal allowance of £13,035 (the figures are rounded for the tax code).

Conversely, if your tax code is 1066N then that is likely to be because you have volunteered to give up 10% of your personal allowance to transfer over to your partner who can make use of it. You can do this if you don’t use all of your personal allowance.

This is worked out by taking £1,185 away from £11,850, thus giving you a personal allowance of £10,665 (figures are rounded).

(The above figures are based on amounts for the 2018/19 tax year.)

If you believe that your tax code is wrong then you should contact HMRC on 0300 200 3300.