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Millions to benefit from pay rise and tax cuts

The new financial year starts this week, with around 35 tax, benefit and pensions changes coming into effect.

  • 32 million people in the UK will see their income tax bill reduced compared to 2015-16
  • 2.1 million people are also set to benefit from this week’s National Minimum Wage and National Living Wage increases

Over 30 million people are set to benefit from the increase to the personal allowance and higher rate threshold this month, as the Chancellor delivers on a manifesto commitment one year early.

Britain’s workers will also benefit from the biggest increase to the National Living Wage since it was introduced, rising by almost 5% to £8.21 per hour. This inflation-busting pay rise means a full-time National Living Wage worker will earn an extra £690 over a year.

The National Minimum Wage has also increased faster than inflation. This includes increases to £7.70 per hour for 21 to 24-year olds and £6.15 for 18 to 20-year olds, with workers in the retail and hospitality sectors due to benefit the most. Taken together with the National Living Wage rise, in total 2.1 million people are set to get a pay rise.

And a fuel duty freeze for the ninth year in a row and increases to work allowances in Universal Credit will go towards helping families with the everyday cost of living.

Chancellor of the Exchequer, Philip Hammond, said:

Thanks to our careful management of the public finances and the hard work of the British people, we can afford to cut taxes for millions, increase the wages of the lowest paid, and cut business rates for small retailers.

The economy is growing, debt is falling, and funding for public services and investment is increasing. Our balanced approach means Britain is well placed to seize the opportunities that lie ahead.

Financial Secretary to the Treasury, Mel Stride, said:

Our Budget was unashamedly for the strivers and the workers who keep the country going.

From this month we’ve introduced tax cuts, increased wages and boosted support for small retailers to ensure people keep more of the money they work hard to earn.

It’s good news for Britain’s businesses, too. The government’s plan for the High Street is cutting costs by £1 billion over the next two years by giving small retailers a third off their business rates bills. Together with other rates reforms and cuts introduced since 2016 this is saving businesses over £13 billion over the next five years.

Alongside these changes, the government is increasing investment in key public services. The start of the new financial year means nearly £1.1 billion extra funding for the police, access to £1.3 billion more for local councils, and £1.1 billion extra for our schools.

This is all part of the government’s balanced approach, getting debt falling while investing in vital public services and keeping taxes low for people, families and businesses.

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Marriage Allowance promoted on Valentine’s Day

HMRC is encouraging married couples and people living in a civil partnership to sign up to the tax free break, which is worth up to £238 this year.

HM Revenue and Customs (HMRC) is sharing the love this Valentine’s Day and encouraging married couples and those in a civil partnership to sign up for Marriage Allowance.

More than 3.5 million couples are already benefitting from Marriage Allowance, which was introduced in April 2015, but HMRC estimates around 700,000 couples are still eligible for the free tax break worth up to £238 this year. If their claim is backdated, they could receive a lump sum of up to £900.

Couples can find out more and apply for Marriage Allowance on GOV.UK.

Financial Secretary to the Treasury, Mel Stride, said:

For more than 3.5 million married couples and those in a civil partnership, we are putting up to £238 this year back into their wallets, and it is encouraging to see so many people taking advantage of the tax relief.

Married couples who are yet to sign up for this great scheme – you too can benefit – it is quick to register and any back-dated allowances will be paid as a lump sum.

Marriage Allowance lets lower income workers transfer £1,190 of their Personal Allowance to their husband, wife or civil partner – if their income is higher. This reduces their tax by up to £238 for 2018 to 2019 tax year.

Customers can benefit from Marriage Allowance if all the following apply:

  • you’re married or in a civil partnership
  • you do not pay Income Tax or your income is below your Personal Allowance (usually £11,850)
  • your partner pays Income Tax at the basic rate, which usually means their income is between £11,851 and £46,350

The personal tax allowance is increasing to £12,500 in April 2019. The increase in non-taxable earnings means eligible couples will be able to transfer up to £1,250 from the lower income to the higher income earner – reducing their tax by up to £250 a year.

Couples are guaranteed 100% of their eligible entitlement if they apply directly through HMRC.

There is no need to reapply for Marriage Allowance every year because it is automatically renewed. However, couples should notify HMRC if their circumstances change and they want to cancel it.

Further information

  1. Marriage Allowance is available in Scotland although the higher earning partner must pay the starter, basic or intermediate rate, which usually means their income is between £11,850 and £43,430.
  2. In Budget 2018, the government asked the Law Commission to propose options for a simpler and fairer system to give modern couples meaningful choice. This will include looking at reducing unnecessary red tape and lowering the cost of wedding venues for couples.
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Budget 2018: 24 things you need to know

The Chancellor has presented his Budget to Parliament – here’s a summary of what was announced.

1. Public finances have reached a turning point
Since 2009-2010 the deficit has fallen by four-fifths, from 9.9% to 1.9%. Public debt peaked in 2016-17 and is now falling. On average, spending on public services will grow 1.2% above inflation a year from next year until 2023-24.

2. Employment is at a near record high and the OBR forecasts it is set to keep growing
The economy has grown every year since 2010, and is projected to continue growing in each year of the forecast. The unemployment rate is at its lowest for over 40 years, there are over 3.3 million more people in work since 2010 and the OBR forecasts 800,000 more jobs by 2022.

3. National Living Wage will increase to £8.21
From April 2019 the National Living Wage will increase from £7.83 an hour to £8.21. This will benefit around 2.4 million workers, and is a £690 annual pay rise for a full-time worker.

4. The tax-free Personal Allowance will rise to £12,500
The Personal Allowance – the amount you earn before you have to start paying income tax– will increase by a further £650 in April 2019 to £12,500.

This rise comes a year earlier than planned, and will be maintained in 2020. This means a basic rate taxpayer will pay £1,205 less tax in 2019-20 than in 2010-11.

5. The Higher Rate Threshold will increase from £46,350 to £50,000 in April 2019
The amount people will have to earn before they pay tax at 40% will increase from £46,350 to £50,000 in April 2019.

This means that in 2019-20, there will be nearly 1 million fewer higher rate taxpayers than in 2015-16.

6. £1.7 billion to increase existing work allowances in Universal Credit
Increases to work allowances will mean working parents and people with disabilities claiming Universal Credit will be £630 better off each year.

People will also receive extra help as they move from their existing benefits to Universal Credit and there will be targeted support for people repaying debts.

7. A new railcard for all young people aged 26 to 30, available nationally by the end of the year
The first digital only railcard will offer up to a 1/3 off most rail travel.

8. Fuel duty will remain frozen for a ninth year
In 2019, fuel duty will remain frozen for the ninth year in a row, saving the average driver £1,000 since 2010.

9. Short-haul rates of Air Passenger Duty will not rise
Short-haul rates of Air Passenger Duty will not rise for the eighth year in a row, keeping costs down for 80% of passengers. Long-haul rates will rise in line with inflation.

10. Duty on beer, cider and spirits remains frozen
The cost of a pint of beer will be 2p lower than if duty had risen by inflation.

11. NHS funding will increase, including more spending for mental health
The NHS is the public’s number one priority and the government will increase its budget by £20.5 billion after inflation by 2023-24. Within this, the NHS will increase mental health spending by more than £2 billion a year by 2023-24.

12. £650 million for social care next year
Local authorities in England will receive a further £650 million in social care funding next year.

13. Lifting the borrowing cap to allow local authorities to build more housing
From today in England the government is lifting the cap on the amount of money local authorities are able to borrow to build housing. Local authorities fund housing through a separate Housing Revenue Account (HRA).

The Welsh Government is also taking immediate steps to lift the cap in Wales.

14. £400 million extra for schools this year
This will be £10,000 for the average primary school and £50,000 for the average secondary school.

15. A commemorative 50p Brexit coin will be available to buy from Spring 2019
The Royal Mint will create a new commemorative Brexit coin to mark the UK’s exit from the European Union.

16. Up to £19 million in commemoration of the Centenary of the WWI Armistice
Up to £8 million to help with the cost of repairs and alternations to village halls, Miners’ welfare facilities and Armed Forces organisations’ facilities.

£10 million to support veterans with mental health needs through the Armed Forces Covenant Fund Trust.

£1 million for First World War Battlefield visits for school students.

17. £30 billion to improve roads
A £28.8 billion National Roads Fund, paid for by road tax, includes £25.3 billion for the Strategic Road Network (motorways, trunk and A roads). The largest ever investment of this kind.

It will also help fund the new network of local roads (known as the Major Road Network), and larger local road projects.

Local authorities will receive £420 million to fix potholes on roads and renew bridges and tunnels, and there will be a £150 million to improve local traffic hotspots such as roundabouts.

18. More money for Scotland, Wales and Northern Ireland
Scotland, Wales and Northern Ireland will all get more money to spend in devolved areas, including education, health and housing. This Budget means:

over £950 million more for the Scottish Government through to 2020-21

over £550 million more for the Welsh Government through to 2020-21

over £320 million more for a Northern Ireland Executive through to 2020-21

There will also be £150 million for a Tay Cities Deal, £120 million for a North Wales Growth Deal, £350 million for a Belfast City Region Deal and opening negotiations on Derry/Londonderry and Strabane City Region Deal.

19. Over £1.5 billion to support the high street
Small retail businesses will see their business rates bills cut by a third for two years from April 2019, saving them £900 million.

Local high streets will benefit from £675 million to improve transport links, re-develop empty shops as homes and offices and restore and re-use old and historic properties.

Public lavatories will receive 100% business rates relief.

This adds to previous reductions in business rates since Budget 2016 which will save firms over £12 billion over the next five years.

20. £1 billion more for defence over the next two years
The Ministry of Defence will receive an extra £1 billion to help protect the UK against changing threats such as the rise in cyber-attacks and the resurgence of state-based threats.

This funding adds to the £800 million announced earlier this year.

21. Increasing funding to help departments to prepare for Brexit to over £4 billion
The government is providing £500 million of additional funding for departments to prepare for Brexit for 2019-20. This is on top of the £1.5 billion already announced for that year.

22. The Annual Investment Allowance will increase to £1 million from 1 January 2019 to 31 December 2020
The government will increase the Annual Investment Allowance five-fold from £200,000 to £1 million to help businesses to invest and grow.

Also, from October 2018, businesses will be able to deduct 2% of the cost of any new non-residential structures and buildings off their profits before they pay tax.

23. A 2% digital services tax on large digital firms
From April 2020, large social media platforms, search engines and online marketplaces will pay a 2% tax on the revenues they earn which are linked to UK users.

24. Further changes to the apprenticeship levy to support employers
From April, large businesses will be able to invest up to 25% of their apprenticeship levy to support apprentices in their supply chain.

Some employers will pay half of what they currently pay for apprenticeship training – from 10% to 5%. The government will pay the remaining 95%. We will announce further details on when this will be available.

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Rates and thresholds when you operate your payroll or provide expenses and benefits to your employees.

Unless otherwise stated, the figures quoted apply between 6 April 2017 and 5 April 2018.

PAYE tax and Class 1 National Insurance contributions

You normally operate PAYE as part of your payroll so HM Revenue and Customs (HMRC) can collect Income Tax and National Insurance from your employees.

Your payroll software will calculate how much tax and National Insurance to deduct from your employees’ pay.

Tax thresholds, rates and codes

The amount of Income Tax you deduct from your employees depends on their tax code and how much of their taxable income is above their Personal Allowance.

PAYE tax rates, thresholds and codes 2017 to 2018
Employee personal allowance £221 per week
£958 per month
£11,500 per year
UK Basic tax rate 20% on annual earnings above the PAYE tax threshold and up to £33,500
UK Higher tax rate 40% on annual earnings from £33,501 to £150,000
UK Additional tax rate 45% on annual earnings above £150,000
Scottish Basic tax rate 20% on annual earnings above the PAYE tax threshold and up to £31,500
Scottish Higher tax rate 40% on annual earnings from £31,501 to £150,000
Scottish Additional tax rate 45% on annual earnings above £150,000
Emergency tax codes 1150L W1, 1150L M1 or 1150L X

Class 1 National Insurance thresholds

You can only make National Insurance deductions on earnings above the Lower Earnings Limit (LEL).

Class 1 National Insurance thresholds 2017 to 2018
Lower Earnings Limit (LEL) £113 per week
£490 per month
£5,876 per year
Primary Threshold (PT) £157 per week
£680 per month
£8,164 per year
Secondary Threshold (ST) £157 per week
£680 per month
£8,164 per year
Upper Secondary Threshold (under 21) (UST) £866 per week
£3,750 per month
£45,000 per year
Apprentice Upper Secondary Threshold (apprentice under 25) (AUST) £866 per week
£3,750 per month
£45,000 per year
Upper Earnings Limit (UEL) £866 per week
£3,750 per month
£45,000 per year

Class 1 National Insurance rates

Employee (primary) contribution rates

Deduct primary contributions (employee’s National Insurance) from your employees’ pay through PAYE.

National Insurance category letter Earnings at or above LEL up to and including PT Earnings above the PT up to and including UEL Balance of earnings above UEL
A 0% 12% 2%
B 0% 5.85% 2%
C NIL NIL NIL
H (Apprentice under 25) 0% 12% 2%
J 0% 2% 2%
M (under 21) 0% 12% 2%
Z (under 21 – deferment) 0% 2% 2%

Employer (secondary) contribution rates

You pay secondary contributions (employer’s National Insurance) to HMRCas part of your PAYE bill.

Pay employers’ PAYE tax and National Insurance.

National Insurance category letter Earnings at or above LELup to and including ST Earnings above ST up to and including UEL/UST/AUST Balance of earnings above UEL/UST/AUST
A 0% 13.80% 13.80%
B 0% 13.80% 13.80 %
C 0% 13.80% 13.80%
H (Apprentice under 25) 0% 0% 13.80%
J 0% 13.80% 13.80%
M (under 21) 0% 0% 13.80%
Z (under 21 – deferment) 0% 0% 13.80%

Class 1A National Insurance: expenses and benefits

You must pay Class 1A National Insurance on work benefits you give to your employees, example a company mobile phone. You report and pay Class 1A at the end of each tax year.

NI class 2017 to 2018 rate
Class 1A 13.8%

Pay employers’ Class 1A National Insurance.

Class 1B National Insurance: PAYE Settlement Agreements (PSAs)

You pay Class 1B National Insurance if you have a PSA. This allows you to make one annual payment to cover all the tax and National Insurance due on small or irregular taxable expenses or benefits for your employees.

National Insurance class 2017 to 2018 rate
Class 1B 13.8%

Pay Class 1B National Insurance.

National Minimum Wage

The National Minimum Wage is the minimum pay per hour almost all workersare entitled to by law. Use the National Minimum Wage calculator to check if you’re paying a worker the National Minimum Wage or if you owe them payments from past years.

The rates below apply from 1 April 2017.

Category of worker Hourly rate
Aged 25 and above (national living wage rate) £7.50
Aged 21 to 24 inclusive £7.05
Aged 18 to 20 inclusive £5.60
Aged under 18 (but above compulsory school leaving age) £4.05
Apprentices aged under 19 £3.50
Apprentices aged 19 and over, but in the first year of their apprenticeship £3.50

See National Minimum Wage rates for previous years.

Statutory maternity, paternity, adoption and shared parental pay

Use the maternity and paternity calculator for employers to calculate your employee’s Statutory maternity pay (SMP), paternity or adoption pay, their qualifying week, average weekly earnings and leave period.

Type of payment or recovery 2017 to 2018 rate
SMP – weekly rate for first six weeks 90% of the employee’s average weekly earnings
SMP – weekly rate for remaining weeks £140.98 or 90% of the employee’s average weekly earnings, whichever is lower
Statutory paternity pay (SPP) – weekly rate £140.98 or 90% of the employee’s average weekly earnings, whichever is lower
Statutory adoption pay (SAP) – weekly rate for first six weeks 90% of employee’s average weekly earnings
SAP – weekly rate for remaining weeks £140.98 or 90% of the employee’s average weekly earnings, whichever is lower
Statutory shared parental pay (ShPP)– weekly rate £140.98 or 90% of the employee’s average weekly earnings, whichever is lower
SMP/SPP/ShPP/SAP – proportion of your payments you can recover from HMRC 92% if your total Class 1 National Insurance (both employee and employer contributions) is above £45,000 for the previous tax year

103% if your total Class 1 National Insurance for the previous tax year is £45,000 or lower

Statutory Sick Pay (SSP)

The same weekly SSP rate applies to all employees. However, the amount you must actually pay an employee for each day they’re off work due to illness (the daily rate) depends on the number of ‘qualifying days’ (QDs) they work each week.

Use the SSP calculator to work out your employee’s sick pay, or use the rates below.

Unrounded daily rates Number of QDs in week 1 day to pay 2 days to pay 3 days to pay 4 days to pay 5 days to pay 6 days to pay 7 days to pay
£12.7642 7 £12.77 £25.53 £38.30 £51.06 £63.83 £76.59 £89.35
£14.8916 6 £14.90 £29.79 £44.68 £59.57 £74.46 £89.35
£17.8700 5 £17.87 £35.74 £53.61 £71.48 £89.35
£22.3375 4 £22.34 £44.68 £67.02 £89.35
£29.7833 3 £29.79 £59.57 £89.35
£44.6750 2 £44.68 £89.35
£89.3500 1 £89.35

Student loan recovery

If your employees’ earnings are above the earnings threshold, record their student loan deductions in your payroll software. It will automatically calculate and deduct repayments from their pay.

Rate or threshold 2017 to 2018 rate
Employee earnings threshold for Plan 1 £17,775 per year
£1,481 per month
£341 per week
Employee earnings threshold for Plan 2 £21,000 per year
£1,750 per month
£403 per week
Student loan deductions 9%

Company cars: Advisory Fuel Rates (AFRs)

Use AFRs to work out mileage costs if you provide company cars to your employees.

The rates below apply from 1 December 2017.

Engine size Petrol – amount per mile LPG – amount per mile
1400cc or less 11 pence 7 pence
1401cc to 2000cc 14 pence 9 pence
Over 2000cc 21 pence 14 pence
Engine size Diesel – amount per mile
1600cc or less 9 pence
1601cc to 2000cc 11 pence
Over 2000cc 13 pence

Hybrid cars are treated as either petrol or diesel cars for this purpose.

Employee vehicles: Mileage Allowance Payments (MAPs)

MAPs are what you pay your employees for using their own vehicle for business journeys.

You can pay your employees an approved amount of MAPs each year without having to report them to HMRC. To work out the approved amount, multiply your employee’s business travel miles for the year by the rate per mile for their vehicle.

Find out more about reporting and paying MAPs.

Type of vehicle Rate per business mile 2017 to 2018
Car For tax purposes: 45 pence for the first 10,000 business miles in a tax year, then 25 pence for each subsequent mile

For National Insurance purposes: 45 pence for all business miles

Motorcycle 24 pence for both tax and National Insurance purposes and for all business miles
Cycle 20 pence for both tax and National Insurance purposes and for all business miles
AdminRates and thresholds when you operate your payroll or provide expenses and benefits to your employees.
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Bank of England Monetary Policy Summary, November 2017

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 1 November 2017, the MPC voted by a majority of 7-2 to increase Bank Rate by 0.25 percentage points, to 0.5%. The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.

The MPC’s outlook for inflation and activity in the November Inflation Report is broadly similar to its projections in August. In the MPC’s central forecast, conditioned on the gently rising path of Bank Rate implied by current market yields, GDP grows modestly over the next few years at a pace just above its reduced rate of potential. Consumption growth remains sluggish in the near term before rising, in line with household incomes. Net trade is bolstered by the strong global expansion and the past depreciation of sterling. Business investment is being affected by uncertainties around Brexit, but it continues to grow at a moderate pace, supported by strong global demand, high rates of profitability, the low cost of capital and limited spare capacity.

CPI inflation rose to 3.0% in September. The MPC still expects inflation to peak above 3.0% in October, as the past depreciation of sterling and recent increases in energy prices continue to pass through to consumer prices. The effects of rising import prices on inflation diminish over the next few years, and domestic inflationary pressures gradually pick up as spare capacity is absorbed and wage growth recovers. On balance, inflation is expected to fall back over the next year and, conditioned on the gently rising path of Bank Rate implied by current market yields, to approach the 2% target by the end of the forecast period.

As in previous Reports, the MPC’s projections are conditioned on the average of a range of possible outcomes for the United Kingdom’s eventual trading relationship with the European Union. The projections also assume that, in the interim, households and companies base their decisions on the expectation of a smooth adjustment to that new trading relationship.

The decision to leave the European Union is having a noticeable impact on the economic outlook. The overshoot of inflation throughout the forecast predominantly reflects the effects on import prices of the referendum-related fall in sterling. Uncertainties associated with Brexit are weighing on domestic activity, which has slowed even as global growth has risen significantly. And Brexit-related constraints on investment and labour supply appear to be reinforcing the marked slowdown that has been increasingly evident in recent years in the rate at which the economy can grow without generating inflationary pressures.

Monetary policy cannot prevent either the necessary real adjustment as the United Kingdom moves towards its new international trading arrangements or the weaker real income growth that is likely to accompany that adjustment over the next few years. It can, however, support the economy during the adjustment process. The MPC’s remit specifies that, in such exceptional circumstances, the Committee must balance any trade-off between the speed at which it intends to return inflation sustainably to the target and the support that monetary policy provides to jobs and activity.

The steady erosion of slack has reduced the degree to which it is appropriate for the MPC to accommodate an extended period of inflation above the target. Unemployment has fallen to a 42-year low and the MPC judges that the level of remaining slack is limited. The global economy is growing strongly, domestic financial conditions are highly accommodative and consumer confidence has remained resilient. In line with the framework set out at the time of the referendum, the MPC now judges it appropriate to tighten modestly the stance of monetary policy in order to return inflation sustainably to the target. Accordingly, the Committee voted by 7-2 to raise Bank Rate by 0.25 percentage points, to 0.5%. Monetary policy continues to provide significant support to jobs and activity in the current exceptional circumstances. All members agree that any future increases in Bank Rate would be expected to be at a gradual pace and to a limited extent.

There remain considerable risks to the outlook, which include the response of households, businesses and financial markets to developments related to the process of EU withdrawal. The MPC will respond to developments as they occur insofar as they affect the behaviour of households and businesses, and the outlook for inflation. The Committee will monitor closely the incoming evidence on these and other developments, including the impact of today’s increase in Bank Rate, and stands ready to respond to changes in the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target.

The full report can be found here: http://www.inflationreport.co.uk/

AdminBank of England Monetary Policy Summary, November 2017
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