In my last blog post, I offered advice on how to beat the VAT hike, but further changes are also coming in April, including reducing the level for the higher rate tax band which will affect thousands of families.
From April, the higher rate tax bracket will come down to £35,000* a year; and according to the Institute for Fiscal Studies (IFS) this means a further 750,000 people will be bumped up to that category, paying 40% on all earnings over £35,000* a year.
It also means that those currently in the higher rate bracket will have to pay 40% tax on a larger proportion of their salary.
Along with these changes, a planned raise in National Insurance (NI) means that an additional 1% will also be lost from pay packets.
If you are one of the 750,000 people who will suddenly find themselves classed as higher earners, then it’s crucial you plan ahead for the changes and do everything you can now to reduce the potential impact.
Childcare is a significant cost for working parents and childcare vouchers can help with this. But changes are coming for higher rate payers in this area too. If you sign up for childcare vouchers before April 6, then higher and additional rate tax payers will still be able to save the maximum amount, whereas those signing up after April 5 will only be able to save at a reduced rate.
After April 5, any new entrants to voucher schemes on higher rate tax will only be able to claim up to £28 per week and additional rate tax payers up to £22, when currently it’s £55 for everyone.**
So act now to make sure you don’t miss out on the savings!
*Plus personal tax allowance (£7,475)
**Those currently in a scheme will not see a reduction in their savings and all basic rate tax payers will be unaffected by the changes.