April tax changes spell bad news for families

Published by Rebecca Rutt on 15 March 2011.
Last updated on 22 March 2011

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The charity Credit Action is warning households to prepare for more belt-tightening in the new tax year. The charity has identified 45 tax changes that will implemented in April, leaving a typical family £200 worse off.

Families in the 'squeezed middle' – earning just above the higher rate tax threshold - are most likely to feel the pinch on the back of rising national insurance contributions, a reduction to the higher rate tax threshold and sweeping changes to child tax credits. Child benefit will also be frozen for three years before being removed from 40% taxpayers in April 2013.

All 29 million employees in the UK will have to pay an extra 1% in national insurance contributions. Currently higher earners – earning more than £844 a week – have to pay an additional 1% but from April this will increase to 2% on all workers earning £817 a week or more.

The changes

One of the most significant changes is the drop in the higher rate tax income threshold from £43,875 to £42,475, which will see an additional 750,000 people begin paying tax at 40%.

Fuel duty will also go up by 1p per litre above inflation and the consumer price index will now be used to measure all benefits, tax credits and public sector pensions. Previously benefits increased in line with the retail price index, which is higher than CPI, meaning benefits will now increase at a lower rate.

This is on top of losses being felt by the change in VAT to 20% in January which the Institute of Fiscal Studies says amounts to £480 per household.

Rising energy and food prices and fears over potential interest rate rises and further job losses are also putting more pressure on families.

This research from the INS Green Budget says the planned cut in total public spending over the five years from April 2011 will be larger in real terms than the UK has seen in any five-year period since the end of the Second World War.

Joanna Parsley, associate director of Credit Action, says there is no way to avoid these changes.

"It is vital that with under a month to go until these changes take effect everyone looks to revisit their finances and get them in order" she adds.

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