Change to Personal Allowance

The Chancellor, Alistair Darling, has announced an increase to the Personal Allowance of £600 for 2008/09 giving lower paid taxpayers a £120 benefit.

This is in response to a backlash from MPs over the abolition of the 10% income tax rate that was announced by Gordon Brown when he was Chancellor. The change will not be implemented until September 2008 which is when employees will notice the increase in their net take home pay of £60 followed by a £10 monthly increase for the rest of the tax year.

To ensure that higer rate taxpayers don’t gain from this change, the threshold for the higher rate of income tax has been decreased by £1,200. The new figures are as follows:

Personal Allowance (0%): £6,035
Basic Rate Band (20%): £34,800
Higher Rate Band (40%): £40,836+

Note: There is no change to the National Insurance bands however, meaning directors of their own companies on a salary of £452 pcm (or thereabouts) would see no benefit in increasing their salary as the tax saving is negated by the NIC cost.