Middle Income Earners

Tax Cuts Middle Income Earners Can Benefit From

Tax-related woes continue to plague Britain’s workforce, but there might be hope for middle-income earners. Recent tax cuts offer several benefits, although a life in austerity is not going away anytime soon.

Despite the Prime Minister’s pledge of “tax cuts for 30 million people”, not everyone might get to enjoy related advantages. So what is in store for middle income earners?

Increased Personal Allowance

The point at which you need to start paying income tax has been increased from £10,000 to £10,500 per year. This is applicable for anyone born after 5 April 1948. The Chancellor has even increased it further to £10,600. For the most basic rate taxpayer this means an additional £120 a year in savings. Benefit claimants, however, may not be very happy with this move, since their benefit entitlement will also reduce. Only the non-benefit claimants will benefit from the full £120.

Many low-paid workers would not see benefits from this tax cut as well, including those working part-time, because they are unlikely to pay income tax. The same thing is true for a majority of apprentices and self-employed individuals.

Extended Employment Allowance

Households who employ care and support workers are entitled to an employment allowance extension worth £2000. With the removal of the statutory sick pay percentage threshold scheme, extending the employment allowance could not have come at a better time. Moreover disabled employers will continue to have no reporting or payment requirements if they provide low-paid, part-time care and support workers non-cash remuneration, such as board and lodging.

Reforms on Employee Benefits and Expenses

Although there is still a need to draft legislation to ensure details of the reform rules are appropriately satisfied and implemented; the fact that there are indications of a reform is sure to provide taxpayers with some benefits that include:

  • Removal of the £8500 threshold that will take effect from April 2016
  • Statutory exemption for trivial benefits in kind that cost less than £50
  • Exemptions on certain reimbursed expenses
  • Introduction of statutory framework for voluntary payrolling

New Tax Breaks on Pensions

The new Pensions Bill enables a pensioner drawing on the pension pot to leave remainder of the funds upon death free of any tax charge. But this is only applicable if the pensioner is under the age of 75 when he died. The government also decided to ensure that there is no tax disadvantage upon the death of a pensioner who purchased an annuity.

Changes in Tax Credit and Other Welfare Benefits

Apart from those listed above, there are other areas of tax that has been cut to provide middle income earners more benefits.

  • Childcare element of Universal Credit (UC) will cover up to 85% of childcare costs. When a claimant leaves UC and returns six months after, he only needs to undergo a re-claiming process.
  • Tax credit measures will be taken to avoid overpayments. When a claimant’s circumstances change further, tax credit payments will be stopped to prevent overpayment by the end of the tax year.
  • Self-employed workers claiming work tax credit have to meet certain eligibility conditions that have similar restrictions as those that apply in EEA immigrant cases. This is one way to prevent abuse of the system.
  • Employees from the EEA who wish to live and work in the UK will be subject to more stringent conditions before they can enjoy UK benefits. For example, EEA migrants who are not working are only eligible for child benefit and tax credit, housing benefit and Jobseeker’s Allowance, which is only applicable after more than a 3-month stay in the UK.

To find out more on how you can benefit from tax benefits then get in contact with our tax agents.


Photo by Joseph Frank on Unsplash

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