Business News - December 2007

2008/09 Allowances Announced

The government has published the 2008/09 rates and allowances for income tax, national insurance contributions (NI), the state retirement pension as well as other benefits and allowances. To view a full list of the allowances please use the link below.

The amount of the personal allowance for 2008/09 has been confirmed at £5,435, an increase of £210 on the current personal allowance of £5,225.

The government had previously announced that it is to radically change the income tax rates for 2008/09 onwards. The 10% starting rate is to be abolished for earned and pensions income and the 22% basic rate of tax will be reduced to 20%. The higher rate of tax is set to continue at 40%. The starting rate will continue to be available for savings and investment income. There are no changes to the tax rates applicable to dividends.

Lower paid earners lose out
As the NI limits have also been announced it appears that those taxpayers who earn less than approximately £15,000 a year will be worse off in the new tax year. For an employee earning £10,000 they will be approximately £100 worse off a year. This is because the benefit of the reduction in the basic rate of tax from 22% to 20% is outweighed by the unavailability of the 10% band.

What about those on higher salaries?
HMRC had previously announced increases in the earnings on which employees pay 11% NI. The press release confirms that 11% NI will be due on pay between £105 and £770 a week. Until the income tax higher rate limit (the amount of taxable income an individual can receive before paying tax at 40%) is announced, it is impossible to fully calculate the affect on higher earners.

Internet Link:

Treasury rates and allowances

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