Income tax, national insurance, pensions and tax credits

As expected, the personal allowance will increase to £10,000 from 6 April 2014. At the same time, the threshold for higher rate tax will be reduced to £31,865. Tax rates will not be announced until Budget 2014.

Income Tax

For the first time since independent taxation for married women was introduced in 1990, there is different tax treatment for married couples – or couples in a civil partnership – that will apply for all such couples, regardless of age. This new measure will allow a spouse or civil partner to transfer £1,000 of their personal allowance to their spouse or civil partner. From April 2015, a spouse or civil partner not liable to income tax, or who is a basic rate taxpayer can make the transfer, as long as the recipient is not liable to income tax above the basic rate.

By taking the tax liabilities of a couple together, this measure can provide a financial benefit where one spouse or civil partner has an income less than their personal allowance. From 2016-17, the transferable amount will reflect increases to the personal allowance.

Medical treatment

As announced at Budget 2013 the government will introduce a tax exemption for amounts up to £500 per year paid by employers for recommended medical treatment for employees, when an employee has been absent from work due to ill-health or injury. The medical treatment must be recommended by either the new Health and Work Service, or an occupational health service provided or arranged by an employer, for the purposes of helping an employee return to work after a period of absence due to injury or ill-health.

Further requirements will be set out in Treasury Regulations and these are likely to include a minimum number of consecutive days that the employee must have been certified as unfit for work, the manner of the certification and who can provide it. The exemption is likely to come into effect in autumn 2014 and applies only to medical treatment, not medical insurance. Medical insurance paid for by an employer on behalf of an employee will remain a taxable benefit in kind.

National insurance

From 6 April 2015 employers’ national insurance will be abolished for employees aged under 21 on earnings paid up to the Upper Earnings Limit (UEL). For 2014/15 there are no changes to national insurance rates for class 1, class 1A, class 1B and class 4, though all of the thresholds and limits will change.

Class 2 and class 3 weekly rates will be increased, and the new rates will be announced in Budget 2014. The class 1 UEL and class 4 upper profits limit for NICs will, as before, be aligned with the point at which higher rate tax becomes payable, i.e. £41,865.

From October 2015 there will be a new class of voluntary NICs – class 3A – which will give those people reaching state pension age before 6 April 2016 an opportunity to boost their additional state pension.

The government will introduce individual protection 2014 (IP14) as a consequence of the reduction in the lifetime allowance to £1.25m from 6 April 2014. Individuals with IP14 will have a lifetime allowance of the value of their pension savings on 5 April 2014 subject to an overall maximum of £1.5m.

The disability elements of tax credits will be increased by 2.7%, in line with CPI. Family element of child tax credits remains at £545. All other tax credits will increase by 1%.