George Osborne announced he wants to “reward work and support growth”. Sounds good, but only if you can find work! Recent post graduates probably do not feel encouraged by this statement, especially during one of the worse periods of youth unemployment this country has seen in recent years.
Britain is still faced with a mountain of debt and the main focus of this budget continues to cut costs and to save money in order to reduce the deficit.
This will become the responsibility of future taxpayers who include today’s students. On the back of the recent changes in education fees, students may quite rightly feel on the sharp edge of this financial crisis, as they will not enjoy the same tax breaks many incumbent politicians enjoyed when they graduated.
So what did the budget mean for students and recent graduates.
From April 2012 personal tax free allowances are up £630 to £8,105. This will increase to £9,205 from April 2013.
STS Comment: We welcome the increase in allowances, since it will mean less students will now fall into the tax bracket. However with inflation pushing on 2.8%, the government should do more.
The threshold of the basic rate tax band of 20% will decrease by £630 to £34,370.
STS Comment: This is the trade off for the increase in the tax free personal allowance. The government does not want to give away any more money so the people at the higher end of the tax scale will pay for the increase. For students this seems fair since a majority are unlikely to earn over the threshold.
The 50% tax rate announced in Labour’s last budget is finally to be reduced to 45p. The Chancellor’s rationale was that it “damaged competitiveness” and “raised next to nothing”. The decrease will take effect from April 2013.
STS Comment: This is unlikely to affect many students since it only applies once a taxpayer’s income exceeds £150,000 per year.
Commenting on the Budget, Unies Mirza, technical partner of Student Tax Services stated “This budget is a tale of two stories with the Libdems fight for higher tax allowances to help the lower earners at one end and Tories positioning themselves to give Britain the competitive edge by reducing taxes at the top end. It is very much ‘give with one hand and take with the other,’ but middle income earners are the ones who appear to be squeezed.”
The other announcements in brief are as follows;
The growth forecast remains unchanged at .08% and inflation is predicted to be around the 2.8% figure. Unemployment is expected to be around 8.7%.
The Government has announced that it is concentrating on tax simplification. What this means in practice is yet to be seen as invariably it will adversely effect some taxpayers.
The National Minimum Wage will increase from 1 October 2012 to £6.19 per hour for those over 21, but will remain unchanged at £4.98 for those aged between 18 to 21; and £3.68 for those aged 16 and 17.
The Capital Gains Tax annual exemption remains unchanged at £10,600 for 2012/2013 and the rate remains flat rate at 18% until the upper income tax threshold is reached, then it increases to 28%.
The Inheritance Tax nil rate band will remain at £325,000. Students should discuss these aspects with their parents to ensure their inheritance is protected. Parents should be aware that an estate can attract 40% tax if a Will has not been appropriately drafted.
An exciting opportunity comes into play from April 2012 for a new business with a concept or idea to attract investors. From April 2012 the new Seed Enterprise Investment Scheme offers 50% tax relief for investors and this together with grants for new businesses and youths may encourage young graduates to start a business. Contact STS for further information and advice.
There is no change in the VAT rate which remains at 20%, but expect to pay VAT on your pies from now on!
Finally, a pint of beer will cost 3p more, 11p will go on a bottle of wine and spirits will cost another 41p. 37p will be added to a packet of 20 cigarettes.
Any students requiring help or assistance with their tax affairs should register on
studenttaxservices.org.uk for free and impartial advice on student tax matters.