Although the new tax changes have been widely publicised, it appears that a lot of people, including umbrella company contractors, are still unaware of the effect they will have on their personal finances.
The chief executive of unbiased.co.uk, Karen Barrett, says an amazing £13.5 billion in unused tax allowances is being lost by consumers this year through a mixture of general apathy and avoidable circumstances.
HSBC conducted a survey recently that found that 80% of people were unaware that the tax-free limit on cash ISAs was rising from £5,100 to £5340 as from the 6th April. Low income earners can benefit from saving in ISAs and yet they appear unaware of the advantages.
At the other end of the scale, 60% of high earners either didn’t know, or didn’t care, that the total sum that attracts tax relief on pension contributions was reducing dramatically.
Analysts from Grant Thornton say high earners will be hardest hit by the new tax changes. In addition to the tax relief on pensions savings reducing, the earnings threshold has reduced from £43,875 to £42,475, meaning more people will have to pay the 40% tax rate. The weekly tax free allowance under the childcare vouchers scheme is also being restricted for higher rate taxpayers.
Meanwhile, wealth advisers are advising high earners to invest in capital growth, not income, over the next two years. They expect the chancellor to scrap the 50% tax rate in 2013 and therefore suggest investors manage their finances so they are not receiving a lot of taxable income until after the high tax rate is abolished.
One way to do that is to invest up to the maximum £50,000 a year in your pension. Taxpayers earning over £150,000 a year would get tax relief of 50% on their contributions.
Finding your way through the minefield of tax changes can be confusing but umbrella company contractors who take the time to understand them could save themselves some money.
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Image: OUCH! by katerha
