Low Income Earners Lose Out Under New Tax Regulations

Local Colchester business Compare and Save draws attention to new income tax rules, which may affect salaries earners if you earn between £5,032 and £15,074.

It’s fair to say that most people don’t know how income tax is worked out and so are unaware of how changes to the tax system will affect their earnings.

Shockingly, it is those who earn below the official poverty line of £16,492 who will be worst hit by the changes.

The old system

Every adult in the UK is entitled to a tax-free allowance (dependent on age and circumstances). This changes each tax year and increased on April 6 from £5,225 to £5,435. You do not have to pay tax on anything you earn up to this amount, if you have the standard tax code.

Anything you earn over this amount is taxable income. In the past, pay was based on a tax-band system as follows:

Taxable Bands Allowances 2007-08 (£)
Starting Rate = 10% 0 - 2,230
Basic rate = 22% 2,231 - 34,600
Higher rate = 40% over 34,600
In the tax year 2007/08, if you earned £8,000, for example, you would not pay tax on the first £5,225. On the next £2,230, you would have paid tax at 10%. On the remaining £545.00 you would have paid tax at a rate of 22%.

This means that, under the old system, someone earning £8,000 would pay £342.90 in tax and take home £7,349.10 each year (after taking into account National Insurance deductions).

Goodbye 10% band

In the 2007 Budget, the Chancellor announced that the 10% starting rate tax band would be abolished as of April 6 2008, and instead any earnings above the tax-free allowance would be charged tax at the ‘basic rate’ level of 20% (reduced by 2%, from 22%).

This effectively means that people will be paying double the tax on £2,230 of their earnings.
Under the new changes someone earning £8,000 would now pay £513.00 in tax and take home £7,207.60 each year (after National Insurance deductions as well) meaning they would be £141.50 worse off each year.

This is even taking into account the fact they have gained an extra £46.85 in their annual pay packet as a result of the increase in the tax-free allowance from £5,225 to £5,435.

Using a tax calculator which shows year on year differences, we researched which salaries showed a loss under the 2008/09 figures compared to the figures for the 2007/08 tax year.
The research indicates those earning between £5,932 and £15,074 a year will find their monthly pay packets lighter from now on, with year-to-year losses ranging from £0.02 to £152.40.

Emma Skinner, editor at compareandsave.com said: “Compareandsave.com was shocked to learn that the new tax changes were going to affect those living below the poverty line.”

“The recent increase in prices by the big six energy companies, and the increase in the cost of mortgage repayments, will now have more of a negative impact on those people in the affected salary bracket as the tax changes reduce the pay they receive. This is going to send more people spiralling into financial difficulties.”

“We think those affected by these issues would benefit from managing their money in the most effective way possible by budgeting their monthly outgoings and comparing financial products for cheaper and more cost-effective deals.”

Top ten tips for switching credit cards

It’s that time of year again. Christmas is done and dusted, the decorations need to come down and, oh yes, your credit card’s 0% interest rate on balance transfers and purchases is coming to an end.

Because of this, we thought we would give you our top tips on switching credit cards so that you get yourself the best deal out there.

1. Shop ‘til your rates drop

At this time of the year there will be plenty of deals offered to people in this situation. Credit card companies will fight hardest now to get your custom so interest free periods are likely to be long.

Our comparison table will help you to do this as it details all the best offers in one easy to use table.

Make sure you shop around and weigh up the pros and cons of each card. Check out customers’ credit card reviews here to help you make your decision.

Once you have made your decision, use our quick and easy switching service here to really speed things up.

2. Give the balance life

Fed up of switching at the end of countless balance transfers? Are you paying out more in transfer fees than on paying off the balance on your card?

If the answer to both of these questions is yes, then you might want to consider a ‘life of balance’ credit card.

If you transfer your balance to a life of balance credit card, you will be given a much lower APR which will last until you pay off the balance on the card in full. The APR is often at least half that of a standard card.

3. Don’t be a big spender

A common mistake made by those who transfer their credit card balance to a new credit card is that they then use the card on purchases.

If you do this, the credit card company will put your payments towards the balance with the lowest APR first. This means that the balance being charged at 0% APR will be paid off first and the purchases you make at, for example, 12.9% APR will be paid off last.

4. How low can you go?

A couple of years ago, credit card companies introduced balance transfer fees. Now, when you transfer your balance to another card, you are charged anywhere between 2% and 3% of the amount to be transferred (with a minimum fee of £5). This fee is then added on to your existing balance.

When you look for a card to transfer your balance to, bear this transfer fee figure in mind and work out how much it is going to cost you to transfer over your credit card balance. Make sure that this amount is less than the amount you are going to save on not paying interest for a year.

5. Say goodbye to your overdraft/loan

Are you currently paying interest on your overdraft? Or, do you have a small loan that you are paying interest on?

If the answer is yes to both of these questions then you too could benefit from getting a credit card with an interest free period. Of course, the amount you transfer would be subject to a balance transfer fee, but this may still work out cheaper than paying a full year’s interest on the overdraft or loan.

If you are going to get a credit card in these circumstances, bear in mind the amount of time you are likely to need to pay off the balance. Also, don’t get stuck in the trap of making minimum repayments, just because you can. Try to pay off as much of the balance on the card as you would have done if you were still being charged interest.

6. A million faces

When you are looking for a card to transfer to, bear in mind that one company may operate a number of cards. For example, MBNA run all of the football club credit cards, plus the Virgin card has been rebranded under the MBNA name. The RBS Group operate the NatWest, RBS and Mint credit cards.

Because of this, the operator may not allow you to balance transfer to another one of their cards as sometimes you are only allowed to have the interest free offer once. It is up to their discretion to allow you to do this.

7. When will it end?

Another thing to consider is when the new interest free period will end. Cards tend to come with interest free periods of around 12 months, although the range is between six and fifteen months.

Try to shop around for the longest interest period, but don’t allow this to become the only thing you compare across the board.

Consider the time of year when the 0% offer will end. Does this coincide with a time that is particularly expensive for you? Shop around for the best deal based on what suits you the most.

8. Memory of an elephant or a goldfish?

Be sure to set a reminder for when your interest free period ends. If you keep this date in mind, you will be better able to budget your repayments so that your balance is paid off in full by the end of the interest free period.

If you haven’t paid the balance off in full, the reminder will allow you to consider your options and sort your situation out before you get charged a lot of interest.

By this point, you will have had the card for a year and have built up a credit history with the company. If you have made your repayments on time, they will want to keep your custom. If you speak to them after the interest free period, they may offer you a lower APR on the remaining balance.

9. I promise to pay the bearer on demand the sum of...

The card you transfer to may have different repayment conditions than your previous card. Whereas your existing card stipulates that your minimum repayments must be 5% of the balance with a minimum repayment value of £5, the card you want to transfer to might say that you have to pay back a minimum of 10% a month. Check that you can afford the repayments before you transfer your balance.

10. Bye bye balance

Try your hardest to clear the balance in the interest free period. Work out the maximum you can honestly afford to repay each month and try to stick to it. As an incentive, match the extra you spend and put it in a savings account for that something special you really want.

Viral email scams

We have all had those emails arrive in our inbox claiming to be reports of some sort of scam that is going around. Sometimes, the emails themselves are the real scams and sometimes they are genuine. Either way, they will probably make you think about how you deal with the certain issue being highlighted.

Compare and Save would like to hear from you about any such money related scams so that we can report on the truthfulness of them for you.

Meanwhile, we had one come arrive in our inbox the other day detailing a “credit card scam”.

The email told of how someone will call you, saying that they are from VISA, to tell you that your card has been ‘flagged for an unusual purchase pattern’. They will be able to tell you your account details such as name, address, card number etc. The only piece of information they don’t have is your 3 digit security number on the back of the card that you use for purchases to prove that you have the card in your possession.

It continues saying that you then provide them with this information and then within minutes of putting the phone down, your card has been used for purchases of up to £500.

We wanted to confirm whether this was true or not, so we spoke to Visa Europe to find out.

“Our fraud experts have never seen an attempt to perpetrate this fraud in Europe,” a spokesman for Visa Europe said.

Visa Europe also took the opportunity to remind customers of how they deal with such scams if they do arise.

“Visa Europe takes all criminal scams extremely seriously. We work closely with law enforcement agencies across Europe and provide cardholders with advice to ensure they do not fall victim to such attacks.”

Additionally they sent a reminder to cardholders saying: “they will never receive an unsolicited request from Visa for personal information or account and security data such as their CVV2 (the three digit security code on the back of their card). If a cardholder receives such a call they should not reply and instead should inform their issuing bank.”

If you have received the above email, we hope this information helps to clear up the issues that have arisen from it. If you have any further questions, we recommend that you speak to your bank for advice on keeping your information secure.

It is also advisable to be aware of what information your bank will require when they contact you so that you will be better able to recognise any fraudulent attempts to obtain your personal details.

 

For the best deals of Visa Credit Cards visit www.compareandsave.com

Overcoming the Fear of Becoming an Entrepreneur

Ever once been at a friend’s place for dinner, or just hanging round the student bar with friends in between lectures, or even during one of those tireless boringly quiet periods at work when your fellow colleagues are just sitting round chatting, and you hear the famous old sentence of “I have come up with a really great business idea!”

At first, the whole group around you are always intrigued. It’s a fact of human behaviour. The thought of having that million dollar idea to get you out of the rat race and launch you to entrepreneur stardom is something most people have dreamt of once and hence why you will always have all ears pinned waiting for this incredible idea to be shared.

I have to say in my experience that every time that so-called ‘brave’ person has revealed his or her idea to me, I have rarely (if ever) said that would “simply not work” or “that’s already being done” because the point is even if it’s already being done, there are always different techniques you can use to make an existing product or service better for the customer.

So the question I ask is why? Why is it that such people who are either in a job that they are clearly bored of, or studying some degree for the sake of it possibly getting them a “well-paid job” are not actually pursuing this idea if all those close around them are saying “that’s a really cool idea”. Personally I think it’s a combination of reasons. You could write a book on the excuses as to why it’s so hard to turn the idea into reality. “I don’t have the time”, “I lack the seed capital”, “I don’t have the experience”, “I lack the confidence”, “what if I fail?”

My point to anyone who is perhaps quietly saying these things to themselves right now is that it could not be a better time to begin your own business! Lets weigh up the reasons now.

1. Big companies are downsizing and outsourcing: Students leaving university now already know that even graduating with 2 PHDs and 3 Masters degrees will still not guarantee you a job after university, let alone one that pays well!
   
   More and more students these days are leaving school to go to university, with most of them striving to achieve good grades, to then pursue a career which they may not even know what it is yet.
   
   Whilst I believe university offers young people a lot of valuable life lessons early in their adult life such as independence, self discipline to perform and a work life balance, I personally cannot remember a single thing I was examined on that I now apply to running my companies! Am I alone on this? I highly doubt it. The point is technology has now changed the world of business and how companies operate.
   
   In various industries worldwide, competition for the big corporations has increased dramatically and therefore business costs have never been so monitored. The point I am making is if it’s easier to outsource the internal procedures of a business to a smaller (and in most cases sharper) company to handle it for them they will do so.
   
   You have seen this massively in IT, Recruitment, Marketing and PR, Telephone services right up to where they buy their office furniture from… The world has opened up. What an exciting time to be an entrepreneur!
   
   
2. Your potential customer is no longer one you need to meet face to face: Internet businesses are the future… let me rephrase that. Internet businesses have been the future and have continued to change our lives for over 10 years! Some of the most wealthy people on this planet have achieved it through believing in an idea that soon turned into one of the most commonly used tools in our lives.
   
   Obviously you can include Bill Gates and Microsoft in that category and the google boys but most recently, has been the explosion in social networking sites like myspace and the very well built facebook. The younger generation that is coming into the world of business truly understand the power of the internet and the opportunities that are now endless. Again a great time to turn your current business idea into reality!
   
   
3. Funding, mentoring and entrepreneur networks are now available to help you do it!: It would almost be too easy (and indeed pointless) for me to simply state these opinions to you without any way of helping you turn these business ideas into growing businesses. My reason for this article is that I truly believe there are too many smart young people with business ideas but simply lack the experience, guidance and capital to make it happen. I have been assisting young ambitious entrepreneurs make it happen for a long time now and I still feel I have only just scratched the surface!

Entrepreneurs can learn a lot from each other. Not only from their successes but of course, from the many mistakes that have been made along the way to achieving a strong cash-flowing business.

I began mentoring entrepreneurs in 2 main business fields; investment property and share trading, 2 business fields that I have been actively involved with now for over 8 years. Whilst these two industries continue to give me a lot of satisfaction and offer plenty of opportunity for others to grow their businesses, I have a real passion for assisting entrepreneurs with businesses in many other fields. Whether it be online, new hospitality, music, green technology… the list is almost endless!

It is simply too easy for people to come up with all the excuses in the world as to why they ‘cannot’ turn their idea into a business, my question to you is this; “what is the cost to you if you never even try to do it?” believe me its more than any dollar, yen, swiss franc or pound figure you could come up with. It’s the cost of regret.