A guide to the new tax year
By Ben Salisbury
The new tax year begins on April 6th 2011 and runs until April 5th 2012. This means that employers, employees, pensioners and self-employed workers have a new set of tax allowances and rates applied to them. In this article we will look at how the new tax year affects different taxpayers and what we all need to be aware of.
The headline changes for the next tax year are that employees will be issued with a new tax code increasing the amount of money they are able to earn before income tax has to be paid by £1,000. This means that everyone can now earn £7,470 per year or £144 per week before they have to start paying tax. However, the rate of class 1 National Insurance payable by employees has increased from 11 per cent to 12 per cent and the rate of class 4 National Insurance payable by self-employed workers has risen from eight per cent to nine per cent.
Personal tax: Summary of changes
Income Tax rates and bandwidths to be applied from April 6th 2011 are shown below.
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.
Tax and National Insurance changes
There is a £1,000 increase in the basic personal allowance for income tax for those aged under 65 from £6,475 in 2010/11 to £7,475 in 2011/12 - this is the amount of income most people can earn before they start to pay tax.
National Insurance rates have increased by 1 per cent. This means that employees now pay a primary rate of class 1 NIC of 12 per cent (up from 11 per cent) and the self-employed pay class 4 NIC of 9 per cent (up from 8 per cent).
This increase is offset for those on lower incomes by increases in 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.
From April 2011, changes are being made to the way class 2 NICs are collected from the self-employed. Find out more on the HMRC website.
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From April 6th 2011, HMRC will increase business mileage allowances. Where employees use their car or van for business mileage, they can now claim tax relief of 45 pence per mile (up from 40 pence per mile) for the first 10,000 miles reducing to 25 pence per mile thereafter. Charities that use volunteers will also now be able to pay them the five pence per mile passenger rate.
Check your tax code
All employees and pensioners should check their tax code each year which HMRC will issue shortly. For most people this will be 747L from April 6th 2011.
If you have underpaid tax from a previous year sometimes HMRC will reduce your tax code so that you can repay the tax that way. If you receive employee benefits such as a company car or mobile phone these are deemed by HMRC as taxable and could also mean that a reduction in your tax code is applied by HMRC.
Certain professions such as nursing or if you are studying for a professional qualification carry a small extra allowance for costs associated and can give your tax code a small boost. You need to check with HMRC if you are in a job that qualifies.
Pensioners
The state pension is taxable like any other pension income but confusion arises as tax is not taken off it before it is paid to you. The tax either has to be collected by adjusting the tax taken off your other earnings or pensions under Pay As You Earn (PAYE), or by completing a Self Assessment tax return.
An important piece of paper is sent out to state pensioners by The Pension Service at this time of year - your notification of how much your weekly pension will be from April. Use it to check your PAYE coding for 2011/12, and keep it safe - you might need it later to help complete your 2011/12 Self Assessment tax return. But do watch out as the notification might include some non-taxable benefits, such as attendance allowance, which you should not include on your tax return.
Age-related allowances
If you are a pensioner the amount you can earn before income tax is payable is higher than if you are under 65. For those aged 65-74 the amount that can be earned before income tax is due will be £9,940 from April 6th 2011 and for those aged 75 and over this increases slightly to £10,090.
Students
If you are a student working only in holiday time and think you will earn less than your personal allowance over the whole tax year (£6,475 for 2010/11 and £7,475 for 2011/12), you can ask your employer if you can complete a form P38(S) which allows you to be paid without tax being taken off your wages. But National Insurance contributions may still be deducted depending on your weekly or monthly income.
Student Loan
If you have a student loan and have completed your course and are now earning more than £15,000 a year you may have to begin paying back your student loan from April 6th.
Employers
Employers need to file their year end returns, Employers Annual Return (P35) online and also P14 forms for individuals by May 19th. Employees need to receive their copies of the P14 (P60) by May 31st.
The final date that HMRC will accept employers PAYE tax for 2010-11 is April 19th.
From 6 April 2011, most employers will be required to file ‘in-year' forms such as P45s and P46s online.
Do you need to complete a tax return for 2010/11?
If you have additional income other than being employed you may need to complete a tax-return. You will need to complete a tax return under the rules of self-assessment, if you are a company director, if you have income from savings, investments or property above a certain level, if you have capital gains tax to pay or if you earn more than £100,000. These are the most common examples but there are other rules that will mean you have to complete a tax return. Check HMRC’s website here.
If you are registered to complete a self assessment tax return you will receive either a paper return or notice to complete a return online soon after April 6th.
If you don't receive a Self Assessment tax return or notice to complete one in April, but you think you might have tax to pay for 2010/11 (for example, if you started to receive a new source of income on which tax is due but sufficient tax has not been deducted at source, such as rental income) you must tell HMRC by 5 October 2011. Telephone the Self Assessment helpline on 0845 900 0444. Failing to notify HMRC of a new liability to tax can trigger a penalty.
Are you due a tax repayment?
If you have only worked for part of the year but paid tax through your tax code you could be eligible for a refund. Get in touch with HMRC and complete form P60.
You could also be due a tax repayment if you have had tax applied at basic rate on all of your earnings or if tax has been deducted at source on savings or investment income and you have not used your full personal allowance.
If you are due to complete a Self Assessment tax return, and are due a repayment you should receive the repayment after you file your return.
Savers
ISAs
If you are being charged tax on your savings and you do not make use of an ISA you could benefit from opening one and using the ISA allowance to avoid paying tax on your savings.
The maximum amount of cash you can invest in an ISA in a tax year is increasing to £5,340 per person from 6 April 2011 (up from £5,100 in 2010/11). You can also hold stocks and shares and other types of investment in ISAs.
Savings income
If your total income for a tax year falls within your tax allowances (i.e. you are not a taxpayer), you can register with the bank or building society to have interest paid on your account without tax taken off. To do this, you complete form R85 available from your bank or building society.
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