The Chancellor of the Exchequer presented his 2018 Budget on 29 October. Our Director of Policy Steve Webb explains how it will affect you
Income taxIncome tax bills came down in April 2019. The point at which we start paying income tax (the personal allowance) rose from £11,850 to £12,500, which was a bigger increase than expected, but the personal allowance will be frozen in April 2020. The starting point for higher rate income tax also rose, from £46,350 to £50,000, but will also be frozen the following year. There are different rates and thresholds in Scotland.
National Insurance Contributions (NICs)Higher earners who celebrated the increase in the starting point for higher rate income tax may have found that their gains were lower than expected. This is because the limit on the main rate of NICs (12%) was also raised from £46,350 to £50,000. Above the limit, the NICs rate drops to 2%, so a large increase in the limit for NICs means more of the wages of higher earners are charged at the full 12% rate.
Excise dutiesThe Chancellor had a ‘pick and mix’ approach to the duties on items such as beer, wine, spirits, petrol and tobacco. Petrol duties were frozen again, as were duties on beer, cider and spirits, but duties on wine and on tobacco were increased in the usual way.
Taxation of contractorsHM Revenue and Customs (HMRC) has been carrying out a long-running campaign against people who are registered as self-employed, but who HMRC believes to be, in effect, employees. In 2018, the government clamped down on the use of contractors by the public sector. In the Budget, the Chancellor announced that in 2019 the same restrictions would apply to larger private sector employers who use contractors.
These employers have a legal duty to check whether their contractors are ‘genuinely’ self-employed, and are responsible if it’s decided afterwards that they should have been treated as employed earners. The Chancellor expected this rule change would be his biggest revenue-raising measure in the Budget.
Universal CreditThe government's Universal Credit benefit replaced six existing benefits and tax credits. The system has proved to be controversial, partly because of delays in payments and partly because certain groups get less support than under the old rules. The Chancellor announced that there would be extra money for Universal Credit to benefit families in low-paid work and also help to smooth the transition onto the new system for those currently receiving existing benefits, such as Jobseekers Allowance.
Sometimes, the most interesting aspect of the Budget is the ‘dog that didn’t bark’. Despite warning in the run-up to the Budget that the cost of pension tax relief was ‘eye-wateringly expensive’, the Chancellor didn’t make any changes to the system. But we believe it’s only a matter of ‘when’ rather than ‘if’ this Chancellor (or a successor) further reduces the limits on pension contributions, which benefit from tax relief.
More news and insights
Staying safe from Brexit scams
With confusion around Brexit giving fraudsters more opportunities to scam customers, knowing what to look out for can help you to protect your pension pot.
Your financial year ahead
When a new year comes around the months ahead can seem daunting, but there are lots of ways to help to boost your savings.
Can you invest without risk?
Moving your money out of savings may seem tempting in a low interest rate environment, but can you invest without putting your nest egg at risk?
Should you save or invest?
While savings accounts may seem like a safe place to keep your hard-earned cash, low interest rates mean it is not always the best option.
Investing for uncertain times
Knowing how to make the most of stock market growth, while protecting yourself from any changes, can help your investments to perform well.
Where to get information about your finances
It’s a good idea to seek professional advice when making important financial decisions, but did you know there’s also plenty of other help available?