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.
Standard tax code
The standard 2017/18 tax code for those with simple financial situations (for example, having only one job, no tax owing from previous years, no other employee benefits etc) is 1150L.
This standard tax code means that you are entitled to the UK personal allowance of £11,500 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 do not have this standard tax code or perhaps your code has another letter at the end (instead of L).
If this is the case then you may have one or any of the following which may affect your tax code (and these are just some examples):
earnings from another job
benefits in kind
tax owed from previous years
transfer of the marriage allowance
earnings over £100k
Can’t figure out your tax code?
If you can’t figure it out though, 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 2016/17. 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.
The personal savings allowance was introduced in April 2016 and it meant that 95% of people no longer had to pay any tax on their savings.
Anyone who was in the 20% or the 40% tax brackets was entitled to a personal allowance of either £1000 or £500 respectively. Those in the highest tax bracket were not entitled to any personal tax allowance.
The figures given are the amount of interest that savers could earn before they would have to pay any tax on that interest. The figures were set for the initial tax year of the allowance which was 2016/17.
But if you are looking to see if the personal savings allowance is increasing for the new tax year 2017/18 then the answer is no, the allowances will remain at the figures of £1,000 for basic rate tax payers and £500 for higher rate tax payers.
With interest rates as low as they currently are this means that savers would need to have a significant amount of savings before they actually need to pay any tax on the income received from those savings.
In addition to the personal savings allowance there is also the £,5000 dividend allowance which means that savers will not have to pay any interest on the first £5,000 of dividend income that they receive.
In the tax year 2017/18 the government will be introducing a new UK tax allowance for minor trading and property activity.
The allowance for each category is £1,000 and this means that individuals (who the government classes as self-starters) who have earnings under these two categories can earn up to the allowance and not pay tax on those earnings.
The allowances are also available to those people who earn more than £1,000 in each category, in which case those people will be able to earn the first £1,000 tax free.
The allowance is aimed at the entrepreneurial people in today’s society who aim to make some extra money on the side by doing things like renting out their driveway or selling goods on eBay.
But it is not just limited to these activities and could include for example people making and selling cakes in their spare time or those who make money buying and selling items at car boot sales. It could also cover people who rent out their garage or perhaps some land and those people who do some paid gardening or DIY work at weekends.
Anyone whose earnings are less than £1,000 a year in these categories will not need to fill in a tax return to declare any of this income but people earning over £1,000 will need to declare those earnings and deduct the £1,000 allowance from the income which would be taxable.
Another prime example would be people who use AirBnB to rent out rooms in their house (but not those who use the rent a room allowance to claim tax relief).
Both reliefs are available so if you have earnings in both categories you can claim up to £2,000 in these additional allowances.
The Chancellor of the Exchequer, Philip Hammond, today confirmed in his 2016 Autumn Statement that the personal allowance, which currently stands at £11,000 per annum for the tax year 2016/17, will be increased as per the announcements in previous budgets.
The personal allowance is the amount that an individual may earn before they have to start paying tax.
The increases that were previously announced mean that the personal allowance will be £11,500 starting from April 2017 for the tax year 2017/18 and will increase to £12,500 by the end of the current parliament.
Anyone who earns more than £11,500 currently (but less than £100,000) will benefit from the £500 increase in the personal allowance as follows:
Those who pay tax at the basic rate (currently 20%) will be £100 a year (around £8.33 a month) better off with the increase in the personal allowance.
Those who are subject to 40% tax will see £200 a year (£16.66 a month) more in their pay packets (plus any benefit they may gain from the increase in the 40% tax rate bracket).
There were rumours that the Chancellor may bring in the £12,500 personal allowance quicker than had previously been planned but this did not happen as it was confirmed this would likely be in the 2020s.
Once the personal allowance gets to £12,500 it will be increased in each year in line with inflation, unless any further increases are announced in subsequent budgets.
It was also announced that the Spring Budget will be the last budget at that time of year and that in 2017 the budget will move to being an autumn budget and there will be a subsequent spring statement, thus giving plenty of notice before any changes are introduced in the following April.
The government Gift Aid scheme means that a donation to charity can be increased by 25% so that the charity is effectively getting tax relief on the donation.
So if you give £10 to charity and claim gift aid then the charity will get £12.50. Gift aid only applies at basic rate tax and not at higher rate (see below for more on this).
But if you are wondering can I claim Gift Aid on charity donations? then the answer is, only if you are actually paying some tax. So, if your earnings come below the personal allowance and you are not paying any other tax like Capital Gains Tax, then you cannot claim the Gift Aid on your donations to charity.
So this means that each year when the personal allowance increases, there will be more people that will be in the situation where they are not paying tax and therefore cannot claim Gift Aid.
However, as long as you are paying some tax, then you can claim Gift Aid on donations up to 4 x the amount of tax that you have paid in that tax year.
You will need to notify the charity that you are eligible to claim Gift Aid and if you do this when you are not actually eligible then you will be liable to pay back that tax.
If you pay higher rate tax then you can reclaim the difference between the higher and lower rate though your tax return.
When trying to work out how much tax you need to pay, once you have taken into account the personal allowance that you are given which is the tax free amount that you can earn, you may have different sources of income and it is possible that not all of these sources are taxable.
If you are receiving Working Tax Credit and indeed Child Tax Credit, you may wonder if you have to pay tax on it.
The answer for this type of benefit is no, both Working Tax Credit and Child Tax Credit are not taxable benefits.
Therefore when calculating how much tax you need to pay, you can exclude any money that you get from these benefits in your calculations.
This may mean that you don’t have to pay much tax at all as you can earn up to £11,000 in the tax year 2016/17 before you have to pay tax on earnings on top of that.
The rules regarding different State benefits can be quite complicated as some benefits are actually taxable (including the State Pension) but it may be the case that tax is not deducted at source from these earnings.
So with the start of the new tax year (2016/17), there comes a new Personal Savings Allowance. This means that you are allowed to earn a certain amount in savings interest without paying any tax on it.
The limits that are applicable for 2016/17 are:
£1,000 in savings interest for those who are basic rate taxpayers
£500 in savings interest for those who are higher rate taxpayers
So, due to this change, banks and building societies will no longer be deducting tax from your savings at the source. Instead, if you are liable to pay any tax on your savings due to them exceeding this amount, you will need to either pay the tax to HMRC via your self assessment tax return, or else they will collect it via your tax code.
Not only has the Personal Savings Allowance been introduced, but also those earning under £16,000 (including savings) may also be entitled to make use of all of part of the starting rate of 0% on £5,000 worth of savings interest.
For example, if you earn £9,000 in taxable income, then you can use the £5,000 savings interest allowance and the £1,000 personal savings allowance so you could effectively get £15,000 in tax free income.
Using the above example if you earned £11,000 in taxable income then the maximum you could earn and not pay tax is £17,000.
This obviously assumes that you have conveniently apportioned earnings from taxable income and savings but it is unlikely to be the case for the majority of people.
So if you earn more than £11,000 (the personal allowance for 2016/17) then you will only get some of the £5,000 starting rate if your earnings are below £16,000 – say you earn £13,000 then you can have £3,000 of the starting rate savings allowance.
But whatever you earn – as long as you pay basic rate tax or no tax at all – then you are allowed the £1,000 personal savings allowance.
This graphic may help illustrate the effect for basic rate taxpayers of the personal Savings Allowance (up to £1,000 in interest from savings) and the starting rate savings allowance (up to £5,000 for lower earners)
In green are your taxable earnings, in orange is the available 0% rate on £5,000 worth of savings for lower earners and in blue is the new personal savings allowance of £1,000 for all lower rate taxpayers.
Any savings that fall out of these brackets are taxable.
For higher rate taxpayers you can have £500 in savings interest tax free and anything over that is taxable at your highest rate.
The Chancellor of the Exchequer, George Osborne, today announced in his March 2016 Budget an increase in the personal allowance for 2017/18 which for 2016/17 stands at £11,000.
The personal allowance for 2017/18 has been set at £11,500 which is an increase of 4.5% over the previous year. This increase is to keep in line with the plan that the Conservative Party announced in the election manifesto to increase the personal allowance by the end of their term to £12,500.
This single level personal allowance now applies to people of all ages, including those over 75, as the age allowance for pensioners has been removed so that everyone is entitled to the same personal allowance.
*Update* – this was increased in the 2016 Budget to £11,500
The UK personal allowance is the amount that you are allowed to earn before you are subject to tax. You can also add on to this the personal savings allowance and the dividend allowance that could be applicable to some of your earnings.
So if you are wondering what is the UK personal allowance for the tax year 2017/18 then the figure you are looking for is £11,200.
This is an increase of £200 on the personal allowance from 2016/17 – equivalent to 1.8%.
There were previously other lower figures announced for 2017/18 (which you can still find reference to on the HMRC website which can make it confusing), but when the personal allowance was increased to £11,000 for 2016/17 this was a jump higher than had previously been announced and so figures beyond 2017 also needed to be amended.
Of course there is a small chance that this could be changed in the 2016 budget but it looks unlikely at this stage.