2012/13 Tax and Benefit changes are mostly bad
Are you excited? It is almost New Year. Fiscal new year that is, which this year falls on the potentially oxymoronic Good Friday, 6 April. But what does the dawn of a shiny new tax year bring? An increased personal allowance (with corresponding reduction in the basic rate band such that the bottom limit for higher rate tax remains the same) certainly, but what other changes are lurking in 2012/13? Is it lucky for some, or unlucky for most?
Credit Action, the National money education charity, has handily compiled a list of the impeding changes, and have concluded that only 13 of them can be considered positive or beneficial changes, 21 were found to have an overall negative effect and 4 had mixed outcomes. That’s practically two-thirds Not Good. Nice.
Of course, the 38 changes are wide ranging, and will have an effect in lots of different areas. These will affect almost everyone, but not everyone will be affected by every change, so you could be lucky and only benefit from the 13 good changes. Or you could be walloped by all 21 negative changes. Exactly how they impact on you will depend on your individual circumstances.
A summary of the main changes is included below. Are you feeling lucky, punk?
+ The Personal Allowance will increase by £630 to £8,105.
- The level at which you start paying income tax at 40% (the Higher Rate threshold) is being frozen at £42,475 in 2012-13.
- The Consumer Prices Index will start to be used as the default indexation assumption for a number of direct taxes and National Insurance thresholds (this essentially means that over the long-term, more people will pay more tax than they would have done otherwise).
+ Local Authorities are being incentivised to freeze council tax in 2012-13 – 85% of English councils have said they will freeze or reduce council tax.
- The core Family Element of Child Tax Credit (paid to everyone with children) will start to be withdrawn more quickly – previously this was protected for everyone earning below £40,000, but from 2012-13 it will start to be withdrawn once your income exceeds a much lower “Withdrawal Threshold”
- The Couples and Lone Parents Elements of Working Tax Credit are both being frozen at £1,950 (and will therefore decrease in “real terms”), while the 50+ Elements (paid to people aged over 50 who return to work) are being removed altogether.
- In order to qualify for Working Tax Credit, couples with children will have to work at least 24 hours per week from 6 April 2012, with at least one partner working 16 hours per week (however, there are exemptions to this rule which apply in certain circumstances).
EMPLOYMENT AND ENTERPRISE
- From 30 April 2012, if you undertake a Work Capability Assessment and are placed in the Work Related Activity Group, you will only be able to claim contribution-based Employment and Support Allowance for a maximum period of one year.
- From 30 April 2012, young people aged under 20 (or under 25 if in education or training) will no longer be able to claim contribution-based Employment and Support Allowance unless they have paid sufficient National Insurance contributions.
- From 6 April, you will only be able to make a claim for unfair dismissal if you have worked for your employer for two years (up from one year as previously).
+ Corporation Tax will to fall 2% to 24% in 2012-13.
+ The basic state pension will increase to £107.45 in April 2012, while the full couple entitlement will rise to £171.85.
+ The Guarantee Credit element of Pension Credit will increase to £142.70 for single pensioners and £217.90 for pensioner couples.
- The threshold for qualifying for the Savings Credit element of Pension Credit will be raised to £111.10 for single pensioners and £177.20 for pensioner couples (this means that fewer pensioners will qualify for Savings Credit).
? Some public sector workers will start making increased contributions towards their pensions from April, although the extent to which this applies depends on a variety of factors including salary level.
- Local Housing Allowance rates (which are used to calculate Housing Benefit for tenants in privately owned accommodation) are being frozen for one-year from April.
+ The income threshold at which existing students and graduates will start to repay their student loans is increasing in April from £15,000 to £15,795.
- Air Passenger Duty will increase by around 8% from 1 April 2012, making air travel more expensive.
+ From 2 April 2012, the current range of regional caps on discounts available on properties purchased through Right to Buy will be replaced by a single higher cap of £75,000 (which is intended to make it easier for people to buy their council houses).
- From 21 May 2012, lone parents with a child aged 5 or over will no longer qualify for Income Support on the basis of being a lone parent (in order to continue claiming they will have to be eligible for Income Support for another reason).
- Fuel duty is set to increase by 3.02 pence per litre on 1 August 2012.
? The national minimum wage paid to everyone aged 21 or over will rise by 11p in October to 6.19 per hour. However, it will also be frozen at £3.68 per hour for 16-17 year olds, and £4.98 per hour for 18-20 year olds.