In a bid to to tackle climate change by incentivising people to drive less-polluting cars, the Government will introduce significant changes to road tax levels.
Fully electric cars and those powered using hydrogen fuel cells will be exempt from road tax altogether. Cars purchased before the 1 April 2017 deadline that emit less than 99mg/km of CO2 will continue to be exempt from paying road tax for life.
Owners of cars purchased after that date that emit less than 99mg/km threshold will pay £120 per year for the first year and £140 annually thereafter.
Above this level motorists will be taxed significantly more:
Up to 131g/km - £200 instead of £130
Up to 151g/km - £500 instead of £180
Up to 171g/km - £800 instead of £295
Up to 191g/km - £1,200 instead of £490
Over 255g/km - £2,000 instead of £1,100
The personal allowance for tax-free income has been rising steadily since the coalition government came to power in 2010. This will rise again to £11,500 for 2017 to 2018 from its current level of £11,000.
The basic rate 20p tax limit will be increased to £33,500 for 2017 to 2018 while the 40p higher rate threshold will increase from £43,000 to £45,000 and the additional rate of 45p applies to incomes over £150,000.
Child tax credits
Currently, parents receive the “family element” of £545 per year. This will be abolished in April 2017. Parents of children born before 6 April 2017 will continue to receive the benefit.
In addition, families receive a credit of up to £2,780 for each child, depending on family income. From 6 April this will only apply to the first two children. For children born prior to this date, credits for three or more children will still be applicable.
Public sector contractors
Many contractors work through their own service companies, meaning they pay corporation tax on their earnings and lower levels of National Insurance than employees. For most public sector workers, this arrangement will come to an end.
If HMRC deems the relationship to be one between an employer and employee rather than a contract between two organisations, the contractor will be deemed to come under a rule known as IR35, meaning they have to pay tax and NI contributions at the same level as a normal employee under PAYE. However, they will not receive benefits such as sick pay and holiday pay.
Individual contractors used to have responsibility for determining which side of the line the relationship fell on. This will now shift to the public body, meaning they are likely to err on the side of caution to avoid facing sanctions for non-compliance.
Tax-free child care
The government will contribute up to 20 per cent of the first £10,000 of registered childcare costs per child, per year. This equates to a maximum of £2,000 per child, per year.
The scheme will be available to people who have an annual income under £150,000 and are not receiving help with childcare via tax credits. It is expected to reach more people than the current scheme.
Foreign citizens living in the UK can claim non-domiciled status which means they can pay an annual fee to the Treasury and then pay no tax on any income earned overseas. This has widely been seen as a way for high net worth individuals to significantly reduce their tax burden.
From April 2017, non-domiciled individuals who have been resident in the UK for 15 out of the previous 20 tax years will be “deemed domiciled” in the UK and therefore required to pay tax at the same rates as UK citizens. They will also have to pay inheritance tax on all of their estate
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