June Budget – Income Tax Rates and Allowances
Personal Tax Allowances
In line with the Lib Dems’ manifesto promise – as confirmed in the Coalition agreement, the basic personal allowance will rise to £7,475 from April 2011 with a commitment to further increases towards the promised £10,000 target by the end of the present parliament.
The personal allowance for 2010-11 remains at £6,475.
The income figure above which higher rate tax becomes payable will be reduced from April 2011 so that higher rate taxpayers will not benefit from the increase in personal allowances. The exact figure will be confirmed by HMRC when September’s Retail Prices Index (RPI) is known.
National Insurance Contributions (NICs)
As previously announced both employer’s NICs and employees’ NICs will increase by 1% from April 2011.
The threshold before NICs become payable is to be increased (by an unspecified amount) so that lower paid workers will be better off.
Because the upper limit is being reduced to allow 40% income tax to be paid sooner and the upper earnings limit for NI purposes is linked to this, the upper earnings limit will be reduced. Whether this means that higher paid employees will pay less NI remains to be seen but any benefit is likely to be wiped out by extra income tax at 40%.