What’s the Financial New Year and what does it mean for my payslip?

What’s all this about the new year? Didn’t that happen back on January 1st? You may have read about it in the news or seen some ads in your local train station, but if you haven’t heard: The New Financial Year is fast approaching! April 6th marks the beginning of the 2019/2020 Financial Year.

Why does the Financial Year run from April to April?

Funny story. Before 1752, Britain actually followed a different calendar system called the Julian Calendar, based on the reign of Julius Caesar. In this calendar, New Year’s Day actually fell on the 25th of March, not January 1st. It was also a bit inaccurate, and, after 700 years, was over 11 days behind the solar calendar.

Meanwhile, much of Europe had adopted the far more accurate Gregorian Calendar, the calendar we know and follow today. In 1752, Britain finally decided to hop on the bandwagon and join the 18th century. They removed 11 days from September and changed New Year’s Day to January 1st. However, because they didn’t want to lose out on any tax revenue, they decided to keep the fiscal year in spring, but moved it forward by 11 days - to April 5th!

OK, so back to what this all actually means for you:

If you weren’t contacted by HMRC to file a self-assessment tax return back in January, you may not have given the new Financial Year too much thought. But that doesn’t mean you’re not affected by some of the upcoming changes.

In fact, the British government estimates that over 30 million Brits across all earning brackets could see a change in their monthly payslip come April. If you’re not sure what that might mean for you, we’ve put together a quick-fire round-up of some of the big things to keep in mind ahead of April 6th.

1. You’ll now be opted-in to your workplace pension by default:

From April 6th, most workers in the UK will be automatically enrolled into a workplace pension. The minimum contribution is going up, too, from 5% to 8% of your qualifying earnings! The minimum amount your employer has to contribute is going up from 2% to 3%.

That 8% minimum contribution is comprised of:

1. Money from your pay: 4%

2. Money from your employer: At least 3%

3. Tax-relief from the government: 1%

If you want to contribute more than 4% into your workplace pension, you can chat about this with your employer. For more information on workplace pensions, including what your employer can and can't do, you can read up on the official GOV.UK website. The People's Pension have a great breakdown, too.

What does this mean for your payslip?
Unless you explicitly opt-out, your payslip could be a bit lighter, as a small percentage of your earnings will now go towards your pension by default.
But even if your payslip might be lighter, this change can actually help you to better prepare for your retirement. Taking advantage of your workplace pension could be an easy way of future-proofing your finances, and so, for many people, auto-enrolment is a positive measure.

2. Personal Allowance is going up!

If you’re not sure what your Personal Allowance is, it’s the maximum amount of income you can earn untaxed in a Financial Year. That’s money straight into your pocket!

The British Government announced that on April 6th, Personal Allowance is going up from £11,850 to £12,500.

What does this mean for your payslip?
According to accountants at Crunch, this bump in Personal Allowance means most people can expect £130 reduction in taxes over the course of the Financial Year.

3. Whether you pay the Basic or Higher tax rate could change:

Currently, Basic rate tax payers (that’s anyone who earns between £11,851 and £46,350) contribute 20% of their salary towards income tax and Higher rate tax payers (that’s anyone earning over £46,350) contribute 40%.

From April 6th, the higher rate tax threshold is going up. You will now only have to pay the higher tax rate if you’re earning £50,000 or more per year. That’s up £3,650 from £46,350.

According to GOV.UK, the 2019/2020 tax rate bands look like this:

Personal Allowance: Up to £12,500
Basic rate: £12,500 to £50,000

Higher rate: £50,000 to £150,000

Additional rate: Over £150,000

What does this mean for your payslip?
If your current salary falls between £46,350 and £49,999, you could see an increase in your pay, as you’ll now fall under the basic rate instead of the higher rate.

4. The amount you can earn before starting to repay your student loans is increasing:

The Department of Education announced that from April 6th, the repayment threshold is increasing for both Plan 1 and Plan 2 student loans.

Plan 1 loans: This applies to you if you started university between 1998 and 2011. It also applies to Scottish and Northern Irish loans from 2012 onwards. The repayment threshold for these loans is rising from £18,330 to £18,935. This means you don’t have to start repaying your loan until you’re earning at least £18,935/year.

Plan 2 loans: This applies to all English and Welsh loans if you started university in or after 2012. For Plan 2 loans, the threshold is rising from £25,000 to £25,725. This means you don’t have to start repaying your loan until you’re earning at least £25,725/year.

April 6th also marks the beginning of a new type of student loan, the Postgraduate Loan. The repayment threshold is at £21,000.

What does this mean for your payslip?

Unless your'e self-employed, these payments towards your student loan should come off of your pay automatically. For Plan 1 and 2 loans, that’s 9% of your salary if you fall within the thresholds listed above. Postgraduate loans work the same way, but with 6% of your income deducted each payslip. You can get all of the details on the official Student Loan Repayment website.

5. The national Living Wage is going up, too:

Technically, this change isn’t a part of the new Financial Year, but it comes into effect on April 1st. From the beginning of April, the statuary minimum wage is going up by 4.9%, from £7.83 to £8.21. This is Money reports that this increase is expected to affect over 2 million Brits!

What does this mean for your payslip?

If you’re a UK worker earning minimum wage, and you’re over the age of 25, you can expect to see this bump in your monthly paycheck. For full time employees that’s about a £690 pay increase over the year.

Happy New (Financial) Year!

With these facts in hand, there should be no big surprises on your payslip come April, but there's more to the Financial New Year than changes to your take-home earnings. At Yolt, we think knowledge is power! So, if you'd like to know a bit more about what's coming on April 6th, you can get into the nitty gritty on the official GOV.UK website. Or, if you've got ISAs and tax breaks on the brain, you can check out this handy checklist.

At Yolt, we’re on a mission to empower you with your money, but our blog is not official financial or professional advice. If you're looking for more information on investing, pensions, or taxes and more, seek independent financial advice.

Share via: