Beat the Budget by planning ahead to avoid the Chancellor's latest tax hikes

Published on Saturday 15 March 2008 13:35

IF YOU drive a car, enjoy a glass of your favourite poison or go out to work, the chances are you were poorer after Chancellor Alistair Darling sat down on Wednesday.

Motorists

Car drivers, particularly those with families, were hit hard by reforms to road tax and the introduction of a showroom tax on Morningside tractors. But most measures will not come into force until April 2009, allowing some months to plan.

The bad news is this year's increases to road tax have already come into force, biting last Thursday. The cost of taxing a car in the top G band, which includes a range of family cars such as the Renault Espace, Volvos and Audis, climbs from 300 to 400. But from April 2009 the current seven bands are replaced by 13, pushing many middle-range cars up several bands and doubling the tax for some family drivers.

For example, the tax on a Vauxhall Astra 2.0i 16v or Saab 9-3 MY2008 will more than double from 210 to 430. The owner of a Ford Focus 1.6 Duratec will pay 59% more (170 to 270), and tax on a Citron Xsara Picasso will rise by 48% to 310.

But worse is to come, because from April 2010, all new cars except those with low emissions will be subject to another stinging first-year tax. Known as a showroom tax, new car buyers will be hit by a levy ranging from 115 to 950. Makes attracting the 950 levy include Volkswagen, Audi and Volvo, with the Vauxhall Vectra, Mercedes and Mitsubishi taxed at 750.

But the AA's Edmund King points out that the tax can be mitigated by studying models within makes carefully, which may help hard-pressed families who need big vehicles.

For example, a Renault Espace 2.0 16v petrol will be in Band L, attracting road tax of 415 from April 2009, and a showroom tax of 750 in 2010, whereas the Espace 2.0 dCi will be in band J, pushing road tax down to 260 and the showroom tax to 425.

Similarly, one of the popular Mini models will have no showroom tax, whereas a similar one with slightly higher emissions would get hit by 425.

BEAT THE BUDGET: Start planning now. Examine the new banding of the different models carefully to outwit the taxman. Buy a low-mileage one-year-old car rather than a brand new one. Switch to a more fuel-efficient motor.

Sin taxes

Tax on alcohol goes up today, adding 4p to a pint of beer and 3p for cider. Wine will go up by 14p a bottle (3p per glass), although duty on sparkling wine will increase by 18p a bottle. The cost of spirits rises by 55p. Cigarettes have already increased 11p per packet, while five cigars will cost 4p extra.

BEAT THE BUDGET: There will still be bottles on the shelves today at pre-Budget prices. Hunt them down and stock up. Thereafter try fags and booze cruises.

Wage packets

Many modest earners will be hit hard by changes to personal tax which come into force next month, including scrapping the 10p band, cutting the basic rate by 2p to 20p, and increasing the threshold beneath which National Insurance is levied at 11% from 34,840 (670 per week) to 40,040, pushing their NI bill up by around 520.

In general, those with a household income below 10,000 and more than 40,000 suffer least, while many other groups are much worse off. For example, a couple with no children earning between 20,000 and 40,000 gain very little and could be as much as 10 worse off a month.

Similarly, a couple with two young children and only one partner earning 40,000 gains 1 per month, including tax credits. By contrast, two earners with children and a household income of 100,000 gain 50, even thought they do not qualify for any tax credits. Child benefit will rise from 18.10 to 18.80 next month for the first child and from 12.10 to 12.55 for the rest. From April 2009, child tax credit will rise 50 a year above indexation.

BEAT THE BUDGET: Speak to your employer about using salary sacrifice to lower your NI bill. Make the most of your tax breaks such as Isas and pensions.

Pensioners

Pensioners are one group with something to celebrate after this Budget. Not only do they enjoy a huge increase in their personal allowance, which rises to 9,030 at 65 and to 9,180 at 75, they also benefit from the increase in the winter fuel allowance. Although only a one-off payment, this will give the over-60s 250 this year, and the over-80s 400.

However, it is not all good news for pensioners. Poorer pensioners may be hit by the scrapping of the 2p band.

BEAT THE BUDGET: Sign up to Help the Aged's campaign to keep the winter fuel allowance in future years. Make sure your tax code takes account of the new larger personal allowance.

Plastic bag tax

Chancellor Alistair Darling warned that if supermarkets don't stop dishing the bags out for free he would consider taxing them.

BEAT THE BUDGET: Start hoarding plastic bags now, as a famine is coming. Buy a good shopping trolley.