News
September 2008
PAYE – Replacing the 10% Rate Band
You will recall the furore surrounding the Budget this year (although the scrapping of the 10% tax band was in fact announced a year earlier!).
The Chancellor announced some additional changes to compensate those worst-hit. These changes will come into effect from 7 September 2008, to allow HMRC and employers time to administer this process.
In summary, the 10% tax rate has been abolished (except for savings income).
The basic Personal Allowance has been increased by £600 from £5,435 to £6,035, meaning that people paying basic rate tax of 20% will receive up to £120 more “take-home” pay
However, the starting point for paying higher rate tax of 40% has been reduced by £600, meaning that higher rate tax payers are not affected by these changes. This has been accomplished by a £1,200 reduction in the basic rate band.
There are no changes to the higher Personal Allowances for those aged over 65.
These changes will be back-dated to the start of the tax year. All employers have been instructed to update tax codes for their employees, with effect from the first payday on or after 7 September 2008. This means that a basic rate tax payer will receive an additional £60 with the September salary, and then an additional £10 per month for the remainder of the tax year.
If you account for your Income Tax on your Self Assessment Tax Return, the new allowances will be included in your calculations sheets.
National Insurance rates and thresholds are not affected by these changes.
