Get Financially Fit
What the new tax year means for you
Mar 30, 2022
The tax year (or fiscal year) begins on 6th April and ends on 5th April the following year. So happy new tax year 2022/23!
Why should I care?
Whether you’re self-employed, or working for someone else, it’s important to understand income tax and national insurance.
The start of the tax year is a great time to check you’re paying the right amount of tax. That could save you money in the long run.
It’s also worth taking a look at your savings. Individual Savings Accounts (or ISAs) let you save up to £20,000 a year tax-free. (If you don’t use your tax-free allowance, you can’t carry it forward to the next tax year.)
What is national
Most of us will pay national insurance at some point in our lives.
If you're working, you'll pay it if:
- You earn above £184 a week from employment.
You profit more than £6,515 a year from self-employment.
National insurance funds lots of things, like benefits and state pensions. It also goes towards funding the NHS.
We’re facing a cost of living crisis in the UK. So new changes to national insurance will affect most of us.
National insurance is set to rise by 1.25% from April 2022. But Chancellor Rishi Sunak’s Spring Statement announced some changes that could improve things (a bit).
From July 2022, you’ll be able to earn more before paying national insurance. The threshold will rise from £9,800 to £12,570. The change will save workers up to £330 a year.
What is income tax?
Income tax is the tax you pay on your personal income. There are some exceptions, so it’s worth checking out gov.uk if you’re unsure.
You can estimate your income tax for the year using a tax calculator. You’ll either pay through PAYE or Self Assessment.
What is PAYE?
You’re probably paying income tax through PAYE if you're working for an employer. That’s “Pay As You Earn.” The amount you pay depends on your tax code, and whether you share part of your personal allowance with your spouse.
Sometimes, you might overpay tax through PAYE. That can happen if you didn’t work a full year, or if you were paid on the wrong tax code. If you’ve overpaid in previous years, you could be due a refund.
The most common tax code for 2021/2022 was 1257L. Let’s break it down:
|Number||1257||This indicates how much you can earn tax-free. That’s usually £12,570|
|Letter||L||This indicates that you’re entitled to the standard tax-free allowance|
What is self-assessment?
If you’re self-employed and earn over £1,000 a year, you’ll pay income tax through self-assessment. If you don’t submit that on time, or miss the payment deadline, you could pay expensive penalties.
Bear in mind that the deadline for self-assessment differs from the end of the tax year.
In your tax return, you declare your income and expenses for a given tax year (6 April to 5 April the following year). But the deadline isn’t until the following January.
That means you’ll need to complete a tax return for 2021/22 before 31st January 2023. Or for 2022/23 before 31st January 2023. And so on.
The deadline to pay your tax is also 31st January. So it could be worth getting a head start on your self-assessment for 2021/22 now.
But why does the UK tax year begin on 6th April?
You might expect the tax year to start in January, And it does in some countries! So why does it begin on 6th April in the UK? It’s quite an odd story, so we’ll keep it brief.
Until 1752, Britain used the Julian calendar. In that calendar, the new year started on 25th March. Then we moved to the Gregorian calendar, with New Year’s Day on 1st January.
That change solved some problems, but it also created new ones. To avoid losing tax income, the treasury decided to move the end of the tax year to 6th April.
We hope you’ve got a better understanding of the tax year, and what it means for you.
So whether you’re paying tax through PAYE or self-assessment, it’s worth checking that you’re paying the right amount.
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