The DEVIL’S DETAIL in the

Are Phil’s Budget giveaways actually that feel-good? We’ve read the smallprint to find out what they REALLY mean for you

THE biggest rabbit out the hat in Monday’s Budget was a tax cut for more than 30 million workers. The Chancellor, Philip Hammond, claimed the move would save basic rate taxpayers £130 a year and higher earners a whopping £860.

However — as ever — the devil is in the detai l and changes to National Insurance Contributions buried in the small print mean that not everyone will save this much.

So what does the Budget announcement really mean for you?

WHAT WAS THE GOOD NEWS ON TAX?

WE can earn up to £11,850 — the so-called personal allowance — before we begin to pay basic rate tax at 20 pc. Those in England and Wales start paying the higher rate 40 pc income tax at £46,351. Scotland sets its own income tax rates.

The Tories had pledged to increase how much we can earn tax-free to £12,500 by 2020. Ministers had also promised to raise the threshold at which we begin paying the higher 40 pc rate of tax to £50,000.

On Monday, Mr Hammond announced that he would be introducing these rises a year earlier than planned. He said the move would save basic 20 pc rate taxpayers £130 a year, and higher earners £860.

at the moment, we can earn up to £11,850 before we begin to pay tax, and we start paying the higher rate at £46,351.

The tax savings come because we will be able to earn more money without paying tax and an extra £3,650 before we start paying tax at 40 pc instead of 20 pc.

AND WHAT WASN’T MENTIONED?

IN HIS speech, Philip Hammond failed to mention that our National Insurance contributions will also be going up — which will eat into some of those savings for higher earners.

anyone over 16 who is employed and earning more than £162 a week has to pay National Insurance Contributions (Nics).

Most employed workers pay Class 1 Nics which, like income tax, come directly out of your salary. Class 1 Nics are currently paid at a rate of 12 pc on earnings between £8,424 and £46,350. You then pay 2 pc on anything above this.

However, in april these thresholds will change and the 12 pc rate will be applied to earnings between £8,632 and £50,024.

It means that anyone who earns over £46,350 will see their Nics payments increase from 2 pc to 12 pc on a chunk of their income.

‘These upcoming changes are an example of how Mr Hammond has given with one hand but taken with the other,’ says Nick Onslow, chartered financial planner at Russell Ulyatt.

HOW MUCH WILL I REALLY SAVE?

IT aLL depends on your income and whether you’re employed, selfemployed or retired.

Basic rate taxpayers, for example, will get £130 plus a small Nics saving of £ 24 — because the starting level for paying it is rising — according to Blick Rothenberg, the accountancy firm.

Employed higher-rate taxpayers will save up to £520 a year. How much you get depends on how much you earn, but someone earning between £50,000 and £100,000 would get a boost of £520 a year.

Those with a salary of more than £125,000 will be £260 better off, according to Blick Rothenberg.

This is because those with an By Money Mail team annual income of £100,000 or more see their personal allowance drop by £1 for every £2 of income above the £100,000 limit.

Well- off pensioners will be the only higher earners to get the full £860 a year saving promised by the Chancellor.

This is because once you reach state pension age — which will be 66 for both men and women by October 2020 — you no longer have to pay Nics.

So pensioners over this age with an income between £50,000 and £100,000 will be £860 a year better off from next april.

Pensioners on more than this will make annual savings of £ 600, because, as with those in work, their personal allowance is gradually withdrawn.

WHAT ABOUT MY PENSION?

PENSION savers escaped a major tax-grab in this year’s Budget.

However, changes to earnings thresholds will have a knock- on effect on how much they can afford to set aside for retirement.

Those who earn just over the higher rate threshold of £46,350 and under the new £ 50,000 threshold will now be basic rate taxpayers, meaning they will pay just 20 pc tax on their income instead of it rising to 40pc.

as a result they will lose the 40 pc tax relief they currently receive on their pensions contributions and will get the basic rate relief of just 20pc instead.

So if you are in this earnings bracket and want to put £1,000 into your pension pot, it currently costs you only £600. From april next year, however, the same £1,000 contribution will effectively cost you £800.

Lower earners who don’t pay income tax because their salaries are within the personal allowance may also lose an important pension perk.

anyone earning £10,000 or more is automatically enrolled into a workplace pension.

and while they do not currently have to pay income tax until they earn £11,850, the Government still gives them a 25 pc top-up on their pension contributions as a reward for saving. However, whether or not they actually receive this benefit depends on the type of pension scheme that their employer uses.

In some schemes, employees’ pension contributions are taken out of their earnings after they have already had their income tax deducted. In this case, the scheme automatically claims back the tax relief for all savers and adds it to the pension so the lowest paid workers benefit.

In other schemes, pension contributions are taken before tax is charged. While this works out exactly the same for taxpayers, it means that non-taxpayers don’t get the extra top-up.

already, around a million workers miss out on tax relief because of this anomoly, and after the personal allowance increase, hundreds of thousands more will fall into this category and get less paid into their pension.

Steve Webb, director of policy at Royal London, says: ‘as a result of this lottery, one worker on less than £12,500 a year may receive tax relief, while another working for a different firm on the same salary may miss out.’

Next april, there will also be an increase in pension contributions taken under auto- enrolment from 3 pc to 5 pc of salary — which will also eat into that extra tax- free money.

Baroness Ros altmann, the former pensions minister, says: ‘The doubling of pension contributions would reduce someone’s take-home pay, but this will now largely be offset by the giant increase in the personal tax threshold, making it less likely that people will opt out of paying into their pension.’

The Chancellor also promised to consult on retirement saving for self- employed workers, to find a way of automatically enrolling them into pension schemes alongside employees.

. . . AND MARRIAGE ALLOWANCE?

MaRRIED couples and those in civil partnerships will get an extra boost from the rising personal tax allowance next year.

The marriage allowance allows a

non-taxpayer to transfer 10 pc of their personal allowance to their civil partner or spouse so long as they are not a higher-rate taxpayer.

Under the current rules, a transfer of £1,190 would be permitted.

When the personal allowance rises to £12,500, the marriage allowance will rise to £1,250. This could save up to £250 a year tax.

As the rule is that the higher earner must be a basic rate taxpayer, they will, from next April, be able to earn up to £50,000 a year.

DO SELF-EMPLOYED WORKERS GAIN?

SELF-EmpLoyEd people must pay two types of Nics.

There is a basic £153.40 a year in Class 2 contributions when they earn more than £6,205.

Then, when their profits exceed £8,424, they start to pay 9 pc in Class 4 contributions. For earnings above the ‘upper profits limit’ of £46,350 the Class 4 rate drops to 2 pc.

From next April, the threshold at which Class 2 contributions are due is rising to £ 6,365 and the threshold at which Class 4 contributions kick in will increase to £8,632. The upper profits limit for Class 4 is also increasing to £50,000.

Just like employees who are on payroll, basic rate selfemployed workers will be £130 a year better off from the personal allowance increasing to £12,500.

They’ll also save £16 a year on their NI bill.

Taking the tax and NI changes together, their total saving will be £146 next year, according to accountants deloitte, although those who earn less than £12,500 will not benefit by quite as much.

Higher rate earners making up to £100,000 will save £860 next year in tax but will pay £239 more in NI — so reducing their annual saving to £621.

Those earning between £100,000 and £125,000 a year — the bracket in which the personal allowance gradually tapers down to nothing — will save between £600 and £860 in tax. But they will have to pay £239 more in National Insurance from April, so their total saving will be between £361 and £621.

Those earning more than £125,000 will save just £361 as they have no personal allowance.

meanwhile, self-employed workers who are paid as though they are companies face a clampdown from April 2020.

The taxman is looking to recoup up to £700 million a year from private sector companies who pay workers in this way to avoid having to make NI contributions on their behalf — and from the contractors themselves, too, who also don’t pay National Insurance. The Government took similar action against employers in the public sector in 2017 through ‘IR35’ rules designed to root out ‘false employees’.

The nation’s smallest 1.5 million businesses will not be caught by the private sector changes and the Government has promised not to apply reforms retrospectively to claw back tax for previous years.

John Taylor, head of RSm’s employer solutions team, says: ‘While it is good news that the Government appears to have listened to responses to its consultation by pushing back these changes to April 2020, and excluding small businesses, this will nevertheless be an unwelcome development for the private sector.’

CAN I STILL CLAIM CHILD BENEFIT?

No official changes were announced to the child benefit system. However, the threshold at which workers begin to pay the higher rate of tax has been brought in line with the £50,000 threshold at which child benefit begins to be reduced. This means that if your earnings jump from £49,000 to £51,000, you will feel the difference all the more. Under current child benefit rules, a family with one child receives £ 20.70 a week. Then, for every additional child, they get a further £ 13.70 a week. This means that a family of four would receive a total of £34.40 a week in benefits. However, if one parent earns more than £50,000, then the amount they can claim is tapered off. Under the rules, they have to repay 1 pc of the total child benefit for every £ 100 above the £ 50,000 threshold. once they hit £60,000, they lose the lot. Under the new rules, it means a £1,000 salary rise from £50,000 to £51,000 will now come with both a tax rate rise on the extra £1,000 and a 10 pc reduction in child benefit. Tom Evennett, private client tax partner at Ernst & young, says: ‘The changes will affect people earning just a little more than £ 50,000 because they will be hit with the child benefit reduction and the higher tax rate at the same time.’

WHAT IF I LIVE IN SCOTLAND?

MIDDLE-EARNERS in Scotland face a ‘double whammy’ as a result of the Budget — losing out on a tax cut and having to pay more in National Insurance.

From April, their counterparts elsewhere in the UK will be taken out of paying the higher 40 pc rate of

x until they earn £50,000 — up om £46,350. Scots, whose income tax is set Holyrood, will continue to pay e slightly higher 41 pc rate of tax om £44,300. But changes to the National surance rate will apply UK-wide, eaning people will pay 12 pc on come between £8,632 and £50,000. Currently, National Insurance is vied at the 12 pc rate on earnings tween £8,424 and £46,350, and 2 pc further earnings. So while the st of the country gets a tax cut, higher rtae taxpayers in Scotland face a £340 a year Nics rise.

Together with the lower threshold for higher rate tax, it will leave some Scottish taxpayers paying hundreds of pounds, or, in some cases, over £1,000 more than those in England, Wales and Northern Ireland.

Steven Cameron, pensions director at Aegon, says: ‘ It’s a double whammy for people in Scotland.

‘Not only will they pay more in income tax than those elsewhere, the increased National Insurance rate also applies, so they will have more money taken off them.’ However, the decision to increase the personal allowance threshold at which people start to pay income tax to £12,500 from April does also apply in Scotland.

The Scottish income tax rates will be announced in the Scottish Budget in December.

Mr Cameron says: ‘We will have to wait until December 12 to find out if the higher rate will again be frozen, which would mean people in Scotland start paying higher rate tax on earnings £7,000 sooner than their English counterparts. They also pay income tax at a higher rate of 41 pc.

‘If the Scottish higher rate threshold is frozen at £43,000, someone earning £50,000 in England would pay £ 7,500 in income tax from the 2019/20 tax year, while someone earning the same figure in Scotland would pay £9,047, which is nearly £1,550 a year more, or £129 a month.

‘To make matters worse, Scots face a double whammy because the earnings limit when employee NI rates fall from 12 pc to 2 pc is also going up across the whole of the UK in line with the higher rate tax threshold outside Scotland.

‘So from next April, a Scottish resident earning £50,000 or above will see their take-home pay drop by £30.41 per month because of extra National Insurance.

‘While this will also be the case across the UK, someone earning £50,000 in the rest of the UK is saving £60.83 a month in income tax, giving them a boost to take-home pay of £30.41 a month.’