April 2008 Income Tax and NI Changes: How will they affect you?

A question about : April 2008 Income Tax and NI Changes: How will they affect you?

Updated 2 September 2008
(Comments in the discussion may relate to earlier incarnations of this information)

After the huge '10p tax row' in April, the Government upped everyone's income tax personal allowance (the amount you pay no tax on) from £5,435 to £6,035 to make up for it.

This takes effect next Sunday (7 Sept), so if you earn between £6,035 and £40,835, watch your payslip to ensure you get the extra cash.

What's the background?

In the government's 2007 Budget report, it got rid of the old 10% rate of income tax, and reduced the 'basic rate' from 22% to 20%. Yet when this change was implemented in April 2008, public uproar followed as people earning between around £6,000 and £15,000 actually brought home less pay.

To fix this imbalance, on 13 May 2008, the Chancellor announced everyone's tax-free Personal Allowance for 2008/09 (i.e. this tax year) would rise £600 to £6,035, to reimburse those who lost out when the 10p tax-rate was scrapped; and give a tax cut to many others.

What happens now?

Even though this was announced in May, personal allowances officially increase to £6,035 on 7 September.

For all basic-rate taxpayers the impact is a £120 gain; this money will go straight into your pay, with the first £60 coming in September, and an extra £10 per month for the rest of the financial year until next April.

You shouldn't need to do a thing in order to get this cash; if it doesn't appear in your next paypacket, speak to whoever deals with the payroll at your place of work.

Will this make up for the end of the 10% band?

If you are a basic-rate taxpayer earning £6,035 or more, you'll pocket £120 more over the year than you would have done before this announcement.

This will make up what you lost when the 10% band disappeared, unless you earn between £7,130 and £9,075, when you could still be up to £30 out of pocket compared to last year. The Govt says many will have had tax credit rises too and possibly balance this out, but if it applies to you read my full Benefits Check-up article to find out more.

Higher Rate Taxpayers won't gain (or lose)

For higher-rate taxpayers, the 40% threshold will shift down by £600 to £40,835, meaning most will earn exactly the same as they would have done (if you earn between £40,835 and £41,460, you make a small profit).

See the Chancellor's full statement from May 2008

For a bigger range of data and figures for overs 65s go to HMRC rates

This Forum Tip was included in MoneySavingExpert's weekly email
Don't miss out on new deals, loopholes, and vouchers
FAQs
Privacy Policy
Past Emails
Unsubscribe

Best answers:

• I'm not all that far into the positive side of the graph but at least the income tax reduction won't be completely cancelled out by my council tax and water rate increases...the increased cost of everything else will do that.
  This year's pay rises should see me better off in the end though...
• Well, I am happy to be on the positive side of the graph. But I can't help but feel that there is something wrong with the worst paid workers being worse off, especially with the effect of other bills rising.
• I am really angry with the government with this budget, as I only earn around Ј7,000 per year my tax bill has been DOUBLED in a fell swoop! Up to now I have never reached the 22% mark as after allowance I only stayed within the 10%, now I shall pay 20% on the whole of my taxable income.
  As always, the ones to lose out are the low earner and part timers, and usually these are women. So what's new....
  Caterina
• One group I haven't heard mentioned in all the articles and programmes I've seen about this recently is those on taxable benefits.
  My husband receives long term IB - he currently gets taxed on it to the tune of about Ј5 a week - his tax bill will, if I've calculated it correctly, almost double - it may only be a low figure still, but it will make a heck of a difference to us. And there's no money coming from elsewhere for us to balance things out with, unless someone knows otherwise.
• The rich are better off... those on low incomes and working day to day are worse off. And this is a Labour government?
  It's not much to me, maybe a fiver a month, but for christ's sake... they've got things a**e backwards! They need to be taxing the people who can afford it more!
• But you don't get tax credits unless you are living on your own do you? I have never been able to get them because I live with my partner even though my wages are low
• But this doesnt include the tax free allowance though so the break-even threshold is £15000 plus the tax free allowance. Is that right???
• I'm on WTC (earnings are less than Ј15kpa) and my wages are 'static' in that there is no pay rise from year to year (and no opportunity for progression or prospects - which feels even worse..). This means that even though I'm taxed more and to counter this, it appears the government might increase WTC, the overall effect means that I have become even more dependent on benefits than previously!
• well my employer may increase wages but i will not know about this untill i return. according to the listentotaxman i have lost a further 72+ quid so i will be worst off. i do get tax creds as i have 2 kids. i work 30+hours which is considered full time. but even worst i am on smp for a few more months, so i guess i will need to use my time off work to get a job working 25-30hours earning 15k or more. fingers crossed
• And if you're on standard-rate tax and pay into a pension it'll cost you more. At the moment it costs you 78p per pound you put in, from next year it'll cost you 80p.
• Errm yes it will - on £100 gross you'd currently be taxed less than £22, even on "average wage", things are much worse near the bottom end.