The Fizz! Blog

No Employer's National Insurance for under 21s from this month

As of April 2015, employers no longer have to pay Employer's NI on the salaries of employees under the age of 21.  If the employee is paid £12,000 a year that saves the employer about £500.  Of course, for many employers, this won't be of much relevance, but it'll be a welcome saving for some (including us!).

It remains to be seen how this will end up interacting with age discrimination legislation.  Employers aren't allowed to discriminate on the basis of age when hiring and firing.  But, of course, this new NI saving is explicitly designed to encourage employers to discriminate on the basis of age, when hiring at least!  We'll see how that works out.

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Help-to-Buy ISAs - are they for you?

The new "Help-to-Buy" ISA created a lot of positive buzz after the budget, and it will be good news for many first-time buyers - but, if you want to take full advantage, you need to get cracking as soon as the products are available.

The idea is that you save up to £12,000 in a savings account earmarked for a home deposit, and when you come to buy, the government will top it up by 25% - so, a maximum of £3,000 for a lone buyer or £6,000 for a couple.  However - although you can stick in £1,000 when you open an account, you're then limited to putting £200 a month aside (note that it really is a monthly allowance - if you miss a month, you can't put £400 in the next month to compensate).  So the first time anyone will be able to get the full £3,000 from the government isn't until just before Christmas 2019 - that's how long it'll take to accumulate £12,000!

Even having said that, if the money is earmarked for a first-time flat or house purchase, it looks like a no-brainer to use one of these accounts in preference to a Cash ISA, even if by the time you buy you'll only have a few thousand pounds in the HTB ISA.  The rates on Cash ISAs are so low that even one that's fully funded for a whole year won't give you nearly as much income as a modestly funded HTB ISA.  Since you can only fund one or the other in any individual tax year, then you should probably hold off opening a Cash ISA for this year if an HTB ISA is better for you - though if you do fund a Cash ISA and want to switch, there are legitimate ways round it this year, as described in a helpful MSE article here.

At present it looks as if the accounts will become available from the autumn, so if they're relevant to you, keep an eye out.

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For one year-only - the £5,000 tax-free savings allowance

As of this month, many people are entitled to stop paying tax on their savings income - but most of them may not realise.

At present, income up to your "personal allowance" - £10,000 last year, £10,600 this year - is tax-free, and after that you start to pay tax.  On income it's 20% for a bit, then 40%/60%/45% in sequence, though for savings there's been a 10% starting rate.

From 6th April, if your other income isn't over the personal allowance, you pay no tax on your first £5,000 of savings income.  If your income is over the personal allowance, you start to lose that £5,000 band.  So, for example, someone with £12,600 of other income (£2k over the personal allowance for this year) can only receive £3,000 of savings income tax-free.  And someone with £15,600 (£5k over the personal allowance) of other income will pay tax on every penny of savings income.

Importantly, though, banks and building societies don't know who should be paying tax and who shouldn't.  So unless you tell them otherwise, they're going to deduct tax from your interest.  If that happens, and you have to submit a tax return, then it's no big deal, as the tax on the interest will be refunded to you as part of the tax return process.  If you don't have to submit a tax return, though - which will be the case with at least 95% of the people in question - it *is* a big deal.  You'll suffer the tax but won't get it back.  So, if this applies to you, go to the bank or building society and register to receive interest gross, with no tax deducted!

From 2016-17, these rules are basically going to be superseded.  Leaving things the same for more than 12 months would be much too simple!

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Think about your 2015-16 ISA now!

March is sometimes referred to as "ISA season" by financial advisers, as people rush to use their ISA allowance for the year at the last minute.  However, it's a perverse way of saving and investing.  As we've noted, before, it would be absurd if we tried to scrape together the money for a whole year's mortgage payments at the last minute, so why do we do the same with something equally important, saving for our futures?  There's no "mortgage season", and an "ISA season" is scarcely more logical.

If your income is moderately steady, and you're aspiring to save into an ISA, why not think about setting up a fixed monthly standing order to it (or your pension, or savings account, or all of them) for the new tax year?  If you're aiming to max out an ISA this year, the annual allowance is £15,240, which equates to a monthly payment of £1,270.  If £1,270 seems like a daunting amount to find each month, it's going to be no easier to find the whole lump in one go next March!  Of course, most people aren't going to be able to save the maximum amount - but that doesn't mean you can't save something.  And saving something at the outset of each month makes it harder to spend the money by mistake.  "Save, then spend what's left", as opposed to "spend, then save what's left".

If your income isn't moderately steady, then you might want to think about ways in which you could make it steadier.  But that's something to talk about on another occasion!

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