6 tax year hits that hit your money today, from higher Social Security to the retirement cap

Workers will pay more Social Security from today, even though the Conservatives have vowed in a manifesto not to raise taxes in this government.

Workers, businesses and the self-employed pay an extra 1.25p in the pound to raise billions for welfare.

From April 2022, this will appear as a higher social insurance on payslips and will be converted into a “health and social security tax” from 2023.

Some MPs opposed the move amid pressure on the cost of living, but a cut will be introduced instead in July following an amendment to the Chancellor’s spring statement.

Under today’s changes, workers will pay more social security contributions on their wages, employers will pay additional contributions for employees, and the self-employed will pay more on their profits.

The 1.25 percentage point increase in contributions means workers will now pay 13.25% and 3.25% respectively, rather than paying National Insurance contributions of 12% on earnings up to £50,270 and 2% on anything above that.

For the self-employed, the corresponding rates will increase from 9% and 2% to 10.25% and 3.25%.

However, who pays them will change on July 6th.

Workers and the self-employed are allowed to earn more before they start making Social Security payments after a backlash from the public and MPs.

Taken together, the measures mean that over the next 12 months anyone earning less than around £34,000 a year will pay less into Social Security than they did last year, while those earning more will increase their payments.

Had the chancellor stuck to his original plan, all but the very lowest income workers would have paid more into Social Security.

Many employers will still pay more and business groups have warned this could be passed on in higher prices.

1. Student Loans

Millions will be forced to pay more for their student loans starting today in what has been dubbed a “secret tax hike.”

Student loan repayment thresholds will be frozen from April 6 after scrapping plans to raise them by 4.6%.

That means graduates have to shell out more of their disposable income as wages and prices rise with inflation.

The Institute for Fiscal Studies warned the freeze will cost earners £30,000 more than expected.

IFS economist Ben Waltmann said this was “another blow to real incomes,” adding that it “is effectively a stealthy tax hike for mid-income graduates.”

From next year, students starting university next year will pay off their loans if they earn more than £25,000 – less than the existing threshold of £27,295 a year.

And the deadline for repaying their debts will be extended from 30 to 40 years.

The IFS said this will result in poorer graduates paying £28,000 more over their lifetime.

2. Increase in sick pay

Statutory sick pay is rising today amid rising Covid cases and the shutdown of the coronavirus statutory sick pay scheme.

This is a legal right that covers all workers, including agency workers, casual workers, part-time workers and temporary workers – unless you are self-employed. It covers you if you’re unwell for four days or more.

In the UK, workers are entitled to Statutory Sick Pay if they are employed, are sick for at least four consecutive full days (including non-working days) and are earning on average at least £120 per week before tax.

It is paid for by your employer, not the government.

Until now this has been £96.35 a week for up to 28 weeks – paid as usual by your employer, with tax and National Insurance deducted on top.

From April 6, the amount of money employees can earn each week will increase to £99.35.

But with an inflation rate of 6.2%, energy bills soaring and car fuel costs also soaring, the argument is that it’s still well below the cost of living, raising concerns that this could result in more people becoming ill at home going to work or with covid.

Covid-19 infections in the UK are at a record high, with 4.9 million people affected last week, figures from the Office for National Statistics show.

The number of hospitalized patients with coronavirus is also rising, although levels are well below those seen in previous waves of the pandemic.

Meanwhile, England has scrapped free coronavirus testing for most people, although some free testing for the public continues in Scotland and Wales.

Divorces will also be accelerated as part of the reforms from April 6th


(Getty Images)

3. 20-Day No-Fault Divorces

The biggest overhaul to divorce laws in 50 years goes into effect today as no-fault becomes law. That means couples no longer need to prove wrongdoing to separate before the law.

The change has been welcomed by experts, who said it will help couples move forward and achieve the best results by eliminating unnecessary conflict and tension.

In short, it aims to make the process for couples breakup easier and less traumatic. The new rules remove the need for one or both parties to have committed adultery, deserted, behaved inappropriately, or been separated for several years before a divorce is granted.

However, some experts warn that the financial fate of divorced women remains dangerous. They also argue that the rules do nothing to address money issues that often cause delays.

Emma Watkins, managing director for retirement and veteran at Scottish Widows, said it also won’t address the issue of understaffing among women.

“We know from historical evidence that it’s likely that women often come up short,” she said. “Typically, women’s retirement prospects are already worse than men’s, but when you add divorce, they get worse.”

4. Social Security increase

Millions of workers will pay more taxes on their income starting today as higher levels of Social Security go into effect to fill a gap in social welfare funding.

Social Security payments will increase by 1.25 percentage points from 12% to 13.25% from April 6.

The increase comes despite pressure to suspend it due to broader pressures on the cost of living – with energy, fuel and food bills soaring.

At the moment you pay Social Security for income over £9,568 a year, but the threshold to start paying increases to £9,880.

But changes in the spring declaration mean fewer people will be subject to the tax from July 6, when the threshold for who has to pay it rises to £12,570.

The April hike will put most workers at least £200 worse off, but the Treasury estimates that the ‘typical employee’ will save around £330 a year from July.

For earnings over £50,270, the rate at which you pay National Insurance increases by 1.25 percentage points to 3.25% today, up from 2%.

Employers also pay Social Security – and that rate also increases by 1.25 percentage points.

Find out how the new Social Security tax rates affect you here.

5. Ban on lump-sum pensions

Flat fees for small pension pots of £100 or less will end from today to prevent ‘rip-off’ charges from wiping out savers’ funds over time.

The changes will help workers who have built up many small company pensions through automated enrollment systems during their working lives.

For example, these could be people who have changed jobs frequently or who regularly accept fixed-term contracts.

Rebecca O’Connor, head of pensions and savings at Interactive Investor, told The Mirror that under current rules a £100 pension pot could potentially disappear within five to eight years, based on average figures released by the government .

These figures showed that average fees ranged from £13 to £20 per year, with the highest maximum flat fee being £36, based on a survey of 20 providers.

The ban applies to both “active” and “delayed” pots.

Under current rules, workers in the UK between the ages of 22 and statutory retirement age are automatically included in their occupational pension – provided they earn at least £10,000 a year.

If you don’t fall into any of these categories, you can ask to be enrolled.

The minimum your employer must contribute is 3% and the total minimum contribution for auto-enrollment is 8%. That means if they pay 3%, you have to part with 5% of your income.

6. Higher dividend tax

The Chancellor announced a 1.25% increase in dividend tax rates from April 2022 as part of a package of measures to fund the costs of social care and the NHS.

The changes in dividend tax rates are accompanied by increased social security contributions.

The new dividend tax rates applicable across the UK are:

  • Base Rate – 8.75%

  • Higher Rate – 33.75%

  • Additional Rate – 39.35%

The dividend allowance of £2,000 will still be available and dividends received from ISA will remain tax free.

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https://www.mirror.co.uk/money/6-tax-year-blows-hitting-26645775 6 tax year hits that hit your money today, from higher Social Security to the retirement cap

Fry Electronics Team

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