Latest news with #PersonalAllowance
Yahoo
4 days ago
- Business
- Yahoo
Certain workers getting HMRC Personal Tax Free Allowance hiked to £18,570
Some workers can get £18,570 tax free by using a HMRC saving loophole. Normally, workers can earn £12,570 without paying Income Tax, known as the Personal Allowance. But those earning less than £18,570 per year can boost their tax-free allowance to that amount by using a little-known HMRC rule called the Starting Rate for Savings. Martin Lewis, the BBC and ITV star, said: "If you earn less than £18,570 a year from earned income and savings combined, then all your interest from those savings could be tax-free. READ MORE: State pensioners born before 1959 being handed two extra benefits worth £1,362 READ MORE: All the Nationwide customers who won't get extra £100 payment in June READ MORE UK faces 'Spanish scorcher' heatwave with 31C as exact date it starts announced "That's because you get your personal allowance before you start to pay income tax (£12,570), plus the starting rate for savings (up to £5,000) and the personal savings allowance (£1,000) all in combination." Money Saving Expert explains: "Cheryl: No income from work, has £20,000 of savings income. In this case, Cheryl will be liable to pay tax amounting to a mere £286. "Given that she has no earned income, the interest on her savings is largely covered by a mix of allowances: Personal allowance – the initial £12,570 is exempt from tax. Starting savings rate – the subsequent £5,000 is also tax-free, meaning £17,570 of the interest income is taxed at 0%. Personal savings allowance – ensures the next £1,000 is tax-free, so £18,570 is taxed at 0%." HMRC says: "You may also receive up to £5,000 of interest and not have to pay tax on it. This is your starting rate for savings. "The more you earn from other income (for example your wages or pension), the less your starting rate for savings will be. You're not eligible for the starting rate for savings if your other income is £17,570 or more. Your starting rate for savings is a maximum of £5,000. Every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1." You earn £16,000 of wages and get £200 interest on your savings. Your Personal Allowance is £12,570, HMRC says. It's used up by the first £12,570 of your wages. The remaining £3,430 of your wages (£16,000 minus £12,570) reduces your starting rate for savings by £3,430.
Daily Mirror
5 days ago
- Business
- Daily Mirror
Tax code warning as thousands 'will get surprise in their payslip'
Your tax code may have changed at the start of the new tax year. People have taken to social media to explain why it might have changed and what it means As the new tax year moves forward, HMRC is busy tweaking the tax codes of potentially hundreds of thousands, following the April 6 start. With each fiscal year's commencement, HMRC sends fresh tax codes to those surpassing certain limits, like the Personal Allowance for savings interest or income tax bands such as the £50,270 threshold. A perplexed taxpayer took to the UK Personal Finance sub- Reddit, querying: "Why has my tax code changed from 1250L to 115L? My tax code is currently 1250L however in the new tax year it's going to be 1151L - the HMRC app says I have a deduction of £1,060 on my tax-free allowance, but I don't understand why as I've been in the same job for years and my pay hasn't changed since April." The riddle was unravelled by user u/bluebells7788, who explained: "They're doing this to everyone who has savings. Your bank has reported that you have savings and they have calculated based on the interest reported a deduction in your personal allowance." True enough, HMRC revises tax codes due to savings interest among other factors, and banks report your savings interest to HMRC unless it's sheltered in an ISA. The amount of savings interest you can earn tax-free hinges on your income bracket. If you're bringing in between £17,570 and £50,270 annually, you're entitled to pocket up to £1,000 in savings interest each tax year without paying tax, reports the Express. This could translate to having £20,000 stashed away at a five per cent interest rate for one year. However, even with less than £20,000, you might surpass the limit – take, for instance, £10,000 tied up in a three-year fixed deal that matures, releasing around £1,500 in interest all at once, which would mean tax is due on £500 of it. For those earning between £12,570 and £17,570, there's a chance to benefit from what's dubbed the Starting Rate for Savings, allowing them to earn as much as £5,000 of interest without paying tax. High earners pulling in £50,270 or more are restricted to just £500 of savings interest before taxes kick in, while people with an income of £125,000-plus aren't permitted any tax-free interest earnings. Tax Aid, a charitable organisation, has highlighted that HMRC may adjust your tax code mid-year, not just at the start, stating: "Please also note that in addition to sending a tax code for the beginning of the tax year, HMRC may update your tax code part way through the year if they are informed of a change in your circumstances." HMRC clarifies the situation by saying: "If you go over your allowance, you pay tax on any interest over your allowance at your usual rate of Income Tax. "If you're employed or get a pension, HMRC will change your tax code so you pay the tax automatically. To decide your tax code, HMRC will estimate how much interest you'll get in the current year by looking at how much you got the previous year. "HMRC will send a tax calculation letter and tell you if you have a tax overpayment or underpayment. "Your bank or building society will tell HMRC how much interest you received at the end of the year. HMRC will tell you if you need to pay tax and how to pay it."
Daily Record
21-05-2025
- Business
- Daily Record
Over one million pensioners set to pay higher rate of income tax this year
The Personal Allowance will be frozen at £12,570 until the 2027/28 financial year. The latest figures from the Department for Work and Pensions (DWP) show there are now 13 million people of State Pension age across the country. The current official age of retirement is 66 and set to rise to 67 between 2027 and 2028. The UK Government has confirmed that an estimated 8.51 million people of State Pension age paid income tax in the last financial year and as the Personal Allowance will remain frozen at £12,570 until April 2028, more pensioners are set to pay tax on their retirement income. Charlene Young, senior pensions and savings expert at AJ Bell, warns that over one million pensioners are set to pay the higher tax rate of either 40 per cent (£50,271 to £125,140) for those living in England or Wales and 42 per cent (£43,663 to £75,000) for those in Scotland. The senior pensions and savings expert at AJ Bell, said: 'The nation has fallen victim to the effects of fiscal drag in recent years. Frozen allowances and tax thresholds have pulled more people into the tax system for the first time and hiked the rates of tax people pay as their income rises and they breach a new tax band. 'Pensioners are not shielded from it either - over one million people above state pension age will breach the higher rate 40 per cent threshold this tax year, more than double the number there were when the big freeze began.' Ms Young continued: 'The UK Government is in a straitjacket thanks to its own fiscal rules, and these figures will bolster the arguments of those calling for state pension reform. The full 'new' State Pension is close to breaching the tax-free Personal Allowance, and many pensioners already receive well above this thanks to the way benefits could be built up under the old system. 'The Labour Party has repeatedly pledged to protect the Triple Lock guarantee and has paused further hikes to the State Pension age beyond those due to start in 2026. 'But with pensioner spending predicted to top 50 per cent of the welfare bill by the end of the decade, and the rise in State Pension age from 66 to 67 set to save £10 billion in borrowing, can it really continue to ignore calls for further reform?' The UK Government has confirmed it will honour the Triple Lock policy during this parliamentary term. However, this could see everyone on the full, New State Pension pushed over the tax threshold in just two years' time. Under the Triple Lock policy, the New and Basic State Pensions increase each year in-line with whichever is the highest between the average annual earnings growth from May to July, CPI in the year to September, or 2.5 per cent. It is aimed at preventing the value of the State Pensions being whittled away by cost of living pressures. The New and Basic State Pensions increased by 4.1 per cent in April, however, future forecasts from the Labour Government expect it to rise by 2.5 per cent over the next four financial years. Using these calculations, it puts the full New State Pension on track to be worth £12,578.80 in the 2027/28 financial year - £78.80 over the Personal Allowance. While the amount of State Pension to be taxed may seem relatively small - tax is only paid on the amount over the Personal Allowance - older people with other income streams could find themselves having to part with more cash to pay a tax bill - if it's not automatically deducted from private or workplace pensions through PAYE. Online guidance at on who might need to pay tax on their pension also includes a handy tool to calculate how much tax someone might need to pay, and the different ways this can be done. The latest State Pension Triple Lock predictions show the following projected annual increases: 2025/26 - 4.1%, the forecast was 4% 2026/27 - 2.5% 2027/28 - 2.5% 2028/29 - 2.5% 2029/30 - 2.5% State Pension payments 2025/26 Full New State Pension Weekly payment: £230.25 Four-weekly payment: £921 Annual amount: £11,973 Full Basic State Pension Weekly payment: £176.45 Four-weekly payment: £705.80 Annual amount: £9,175 Future new State Pension forecasts Under a 2.5 per cent increase, the full New State Pension will be worth: 2026/27 - £236 per week, £12,227.30 a year 2027/28 - £241.90 per week, £12,578.80 a year What is taxed Guidance on states: 'You pay tax if your total annual income adds up to more than your Personal Allowance. Find out about your Personal Allowance and Income Tax rates. Your total income could include: the State Pension you get - Basic or New State Pension Additional State Pension a private pension (workplace or personal) - you can take some of this tax-free earnings from employment or self-employment any taxable benefits you get any other income, such as money from investments, property or savings Check if you have to pay tax on your pension Before you can check, you will need to know: if you have a State Pension or a private pension how much State Pension and private pension income you will get this tax year (April 6 to April 5) the amount of any other taxable income you'll get this tax year (for example, from employment or state benefits) You cannot use this tool if you get: any foreign income Marriage Allowance Blind Person's Allowance Use this online tool at to check if you have to pay tax on your pension. The full guide to tax when you get a pension can be found on here.
Daily Record
20-05-2025
- Business
- Daily Record
People urged to check P60 this month for tax error worth £700 on average
All employers will issue P60's for the 2024/25 financial year by May 31, 2025. As employers prepare to issue P60s before the May 31 deadline, tax refund experts are urging people to check it immediately as just one wrong letter could mean you may have been overpaying tax for months. P60s will be issued to anyone who was in full-time employment on April 5. The document shows how much tax you have paid over the tax year, and it could be the key to unlocking hundreds or even thousands of pounds in unclaimed refunds. Robert Jones, CEO of the tax refund company, Swift Refunds advises that your P60 isn't just a year-end tax summary, it may also be a 'warning sign'. 'Your P60 isn't just a year-end summary, it may also be a warning sign,' says Robert Jones, CEO of the tax refund company, Swift Refunds. 'One incorrect tax code and HMRC could be taking too much out of your wages every month.' He explained: 'The average tax overpayment due to incorrect codes is nearly £700, but recent figures from HM Revenue and Customs (HMRC) show the real impact may be even higher..' The latest UK Government data i ndicates that between January 1 and March 31, 2025, HMRC repaid a staggering £44 million in overpaid tax, with the average refund hitting £2,881 per saver. What to check The most important detail to check is your 'final tax code', usually listed near the top of your P60. The standard code for most workers in the UK is 1257L, which means you're entitled to the full Personal Allowance of £12,570 before any tax is deducted. If you spot one of the codes listed below instead, you could be missing out: BR: All your income is taxed at 20%, with no tax-free allowance D0 or D1: Taxed at higher rates, without any allowance No 'L' in your code: You might not be receiving the standard £12,570 Personal Allowance These codes are not always mistakes, but they often appear when: You've changed jobs You're working multiple roles You've had a period of contract or freelance work HMRC has outdated or incorrect information about your situation Unless you spot it and claim it, the system won't correct it automatically. The responsibility of checking and correcting your tax code is down to you, the employee - it is not the responsibility of your employer or HMRC. Checking your tax code The easiest way to do this is to look at your payslip. One you have a note of your Personal Allowance tax code, you can go to the website and use the online 'Check your Income Tax for the current year" service. This tool, which covers the current tax year, can be used to check your tax code and Personal Allowance, and to see if a tax code has changed. Other options available through this online service include allowing users to see an estimate of how much tax they will pay over the whole tax year. However, the service cannot be used by self-employed workers. The website explains: "You cannot use this service if Self Assessment is the only way you pay Income Tax.' What the tax code numbers mean The numbers in an employee's tax code show how much tax-free income they get in that tax year, this is known as your Personal Allowance. You usually multiply the number in the tax code by 10 to get the total amount of income they can earn before being taxed. For example, an employee with the tax code 1257L can earn £12,570 before being taxed. If they earn £30,000 per year, taxable income is £17,430 (£30,000 - £12,570). What the letters mean Letters in an employee's tax code refer to their situation and how it affects their Personal Allowance. The full list of tax code letters and what they mean can be found on the website here. Most commonly used letters: L - For an employee entitled to the standard tax-free Personal Allowance S - For an employee whose main home is in Scotland BR/ SBR - For a second job or pension M - For an employee whose spouse or civil partner has transferred some of their Personal Allowance N - For an employee who has transferred some of their Personal Allowance to their spouse or civil partner T - When HMRC needs to review some items with the employee If your tax code has 'W1', 'M1' or 'X' at the end W1 (week 1) and M1 (month 1) are emergency tax codes and appear at the end of an employee's tax code, for example '577L W1', '577L M1' or '577L X'. If your tax code has a 'K' at the beginning Tax codes with 'K' at the beginning mean you have income not being taxed another way and it's worth more than your tax-free allowance. For most people, this happens when you're: paying tax you owe from a previous year through your wages or pension getting benefits you need to pay tax on - these can be state benefits or company benefits Your employer or pension provider takes the tax due on the income that has not been taxed from your wages or pension - even if another organisation is paying the untaxed income to you.
Daily Record
14-05-2025
- Business
- Daily Record
New UK Government update on calls to increase Personal Allowance to £20,000
More than 252,500 people signed an online petition calling for an increase to the £12,570 Personal Allowance. Income tax rises for Scots in April - how the changes affect you The UK Government has rejected proposals in an online petition to increase the Personal Allowance from £12,570 to £20,000. More than 252,500 people from across the UK signed the e-petition that was debated in Westminster Hall earlier this week. Only a handful of MPs took part in the debate which was observed by petition creator Alan David Frost, who sat in the public gallery. The bottom line from Exchequer Secretary to the Treasury, James Murray, is that it would cost £50 billion to increase the Personal Allowance to £20,000. He told MPs: 'I recognise the views of everyone who has put their name to the petition, and let me be clear that, as a Government, we want taxes on working people and on pensioners, who have worked hard all their lives, to be as low as possible.' Mr Murray continued: 'We were elected to put more money in people's pockets and, crucially, we were elected to do so in a fiscally responsible way. That is a critical point to understand. 'We want to keep taxes on working people and pensioners as low as possible, but if we were to follow the calls of some Opposition parties and abandon fiscal responsibility, it would lead to economic chaos and the collapse of public services, and that would harm working people and pensioners the most.' Mr Murray explained: 'Raising the Personal Allowance to £20,000 would cost more than £50 billion. That is more than the £45 billion of unfunded tax cuts announced by Liz Truss in her disastrous mini-Budget. Conservative and Reform MPs may have cheered Liz Truss on, but like the British people, we in the Labour party know the damage that that caused, and we will never let it happen again. 'To put it another way, if £50 billion was taken out of public services, that would be equal to wiping out almost the entire UK defence budget or slashing the NHS by a quarter. The British people will not be the winners if public services collapse or chaos returns to the economy.' He highlighted how the Labour Government is doing 'everything we can to support working people and pensioners'. Mr Murray said: 'In our first Budget, we decided not to extend the freeze on personal tax thresholds, meaning that people will be able to keep more of their income. We are supporting hard-working families and pensioners through the plan to make work pay and through our significant increases to the national living and minimum wages and the State Pension.' He also said that the UK Persona Allowance is 'one of the more generous personal tax allowances in the OECD, and the most generous in the G7'. The Personal Allowance will be frozen at £12,570 until the 2028/29 financial year. Online petition Petition creator Alan David Frost argues it is 'abhorrent to tax pensioners on their State Pension when it is over the personal allowance' threshold and says the increase would 'inject more cash into the economy'. The 'raise the income tax personal allowance from £12570 to £20000' petition states: 'We think this would help low earners to get off benefits and allow pensioners a decent income. 'We think it is abhorrent to tax pensioners on their State Pension when it is over the personal allowance. We also think raising the personal allowance would lift many low earners out of benefits and inject more cash into the economy creating growth.' Responding to the proposals in the petition on February 20, the Treasury gave a similar response to Mr Murray. The Department said: "The Government is committed to keeping taxes for working people as low as possible while ensuring fiscal responsibility and so, at our first Budget, we decided not to extend the freeze on personal tax thresholds." It also went on to say that the UK Government has no plans to increase the Personal Allowance to £20,000. You can read the full response on the petitions-parliament website here. State Pension payments 2025/26 Weekly State Pension payments increased on April 7, however, people will not see an immediate increase as the contributory benefit is paid in arrears. Full New State Pension Weekly payment: £230.25 Four-weekly payment: £921 Annual amount: £11,973 Full Basic State Pension Weekly payment: £176.45 Four-weekly payment: £705.80 Annual amount: £9,175 To check your own future State Pension payments, use the online forecasting tool on here. State Pension and tax The most important thing to be aware of is that someone on the full New State Pension will not pay income tax, but older people with additional income through employment, private or workplace pensions, might need to pay tax. For most people, this would be paid automatically through PAYE on employment and tax on private pensions. Anyone who doesn't pay tax automatically pays tax through deductions, would receive a tax bill from HMRC the following summer to be paid by January in the next year. There has been a fair bit of speculation on the number of pensioners who will pay tax before the Personal Allowance freeze ends, but currently of the 13 million State Pensioners across the UK, some 8.51 (65%) already pay some tax in retirement, so this isn't something new. And with auto-enrolment in the workplace - now in its 13th year - more people will benefit from increased income in retirement and will probably pay tax - which will typically be deducted from their private pension. It's important to understand any tax to be paid in retirement is based on the amount of income earned above the threshold - not the total additional income. For example, if someone has a total annual income of £13,000, they will pay tax on £430 - which is the amount above the £12,570 threshold. Those affected would then have to pay HMRC 19 per cent of their income above the threshold, which is the starter rate of tax in Scotland (20% in England).
