Income tax, benefit and tax credit changes come into force

The new tax year has arrived and many people affected by changes in their income tax, benefits and tax credits will shortly find out how this is reflected in their actual income.

A number of changes were introduced by the Government as a result of the budget and the Comprehensive spending review.

Some lower earners will no longer be taxed if their earnings are less than £7,475 per year and everyone in the basic rate tax band may stand to gain slightly as they will have a higher personal allowance. Higher income earners will take a hit if their earnings exceed £42,475

Employers and employees will pay an extra 1% towards national insurance contributions. For example employees who earn more than £139 per week and who are not contracted out will be paying 12% instead of 11% which could be an extra £125 a year based on a gross salary of £20,000.

Changes to the benefits and tax credits system from April 2011 include:

• Rates of Child benefit to be frozen for 3 years
• New housing benefit claims in the private rented sector will no longer allow for 5 bedrooms
• The maximum amount for new housing benefit claims in the private rented sector will be based on the bottom third of local rents
• the taper for working out tax credits is changing to 41% instead of 39% so most people who receive tax credits will lose 41p  instead of 39p for every pound over their set threshold. People on income support, income based JSA, income related ESA and pension credit will not be affected
• the maximum amount of child-care costs payable will reduce from 80% to 70%
• the baby element paid with child tax credit which is up to £545 per year will be removed for new claims and will stop for existing claimants who currently still have a child under one
• the child element of child tax credit will be increased by a total of £255 per year
• the tax credits £25,000 disregarded for in year change of income  will now be £10,000
• people wishing to claim working tax credit who are over 60 will now only need to work at least 16 hours per week
• The savings premium for Pension Credit will be frozen for 4 years
• The Surestart maternity grant will only be awarded for the oldest or first child for babies due on or after 11 April 2011
• Crisis loans for living expenses will be reduced from 75% to 60% of the basic personal allowance for income support

For more information on tax and tax credits visit www.hmrc.gov.uk or www.litrg.org.uk

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