Alistair Darling’s announcement in the Pre-Budget Report that he is to increase National Insurance contributions (Nics) sounds like bad news for high- and middle-income families. And it is.
Anyone earning up to £43,888 will pay Nics of 12% from April 2011. That’s up from 11% now. The rate above £43,888 will rise from 1% to 2%. And employers will pay Nics at 13.8%, up from the current 12.8%.
However, there are ways to minimise the hit to your finances. The easiest one is simply to take any salary sacrifice schemes your company operates: these include childcare vouchers, tax-free pension contributions, or even, under the Cycle to Work scheme, tax-free cash to buy a new bike. Do this and both you and your employer will enjoy the benefits – neither of you pay national insurance on salary sacrificed for benefits.
The problem is that despite the benefits (a working couple can save £2,392 a year on childcare by using vouchers, for example), two-thirds of companies don’t operate salary-sacrifices. That means they are missing out on Nics savings of £10m a year, according to analysis from employee benefits provider B&CE Benefit Schemes. Still, Nics aren’t the only taxes on the rise.
VAT will return to 17.5% on 1 January. How do you get round that? Shop now, especially if you are making a big purchase. And as you do, bear in mind that you don’t have to pay right away.
If you are going to buy, say, a kitchen, but won’t be taking delivery until next year, you can still pay VAT at 15%, as long as the goods are worth less than £100,000, and you settle the bill within six months. Just get the retailer to produce an invoice with VAT of 15% and pay a deposit on it. “Not all retailers would be willing to do this,” says Jennifer Hill in The Sunday Times, but shop around and the odds are you will find one who is.
As for capital-gains tax (CGT), that it was left at 18% was a “rare pleasant surprise” in the Pre-Budget Report, says Ian Cowie in The Daily Telegraph. But if you have gains to take, do so as soon as you can: it doesn’t make much sense for the difference between capital-gains tax and income tax to be so big, so CGT is an obvious future target.
Finally, income tax: if you are facing the 50% rate in April make sure you are making the most of allowances. Married couples and members of civil partnerships have two personal allowances – the money you can make before you start paying income tax – so take advantage of them. Something “as simple as transferring cash from a highly paid husband’s bank account to a non-earning wife’s account could reduce tax”, says Cowie.