There has been a lot of publicity
about the announcement that the government
propose to reduce the basic rate of income
tax from 22% to 20%. This change is due to
take effect from 2008/09 and not from 6 April
2007.
2008/09
The proposal is to radically change
the tax rates for 2008/09 onwards when the
10% starting rate will be abolished for earned
and pensions income and the 22% basic rate
of tax will be reduced to 20%. The higher rate
of tax will continue at 40%.
The starting rate will continue to be available
for savings and investment income and capital
gains. There are no changes to the tax rates
applicable to dividends.
2009/10
He also announced that the point
at which people start paying the higher rate
of tax will be increased significantly to £43,000
from 2009/10.
Not all good news watch the national
insurance (NI)
There is, however, a significant
sting in the tail for those with earned income.
For 2007/08 there is no change in the rates
of NI but there are significant proposed changes
to the limits between which NI contributions
are payable. For 2007/08 the lower and upper
earnings limits (UEL) increase by inflation
so that employees will pay 11% NI on earnings
between £100
and £670 per week. Employees continue
to pay contributions of 1% on earnings above
the UEL. For 2008/09 the UEL will be increased
by £75 per week above indexation.
The upper profits limit for Class 4 NI for
the self-employed will also be increased in
2008/09 by £75 per week above indexation.
In 2009/10 UEL will be aligned with the point
at which the higher rate of income tax becomes
payable.
The government claims the increases in national
insurance are aimed at simplifying the tax
system but it comes at quite a cost to employees
and the self-employed.
Internet link:
Treasury press notices
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