Chancellor's pre-Budget report

The Chancellor presented his spending plans to Parliament on 27 November. All of the changes to NI rates and thresholds for the 2002/03 tax year were confirmed, along with the new tax allowances. Most of the increases are based on the year-on-year increase to the Retail Prices Index in September 2001, namely 1.7%.

Income tax allowances

- The personal tax allowance from April 2002 will increase by £;80, from £;4535 to £;4615. This will set the weekly/monthly tax
thresholds
at £;89 / £;385 and the emergency tax code as 461L.
- The age-related tax allowances will increase by £;110 to £;6,100 for individuals aged 65-74 and also by £;110 to £;6,370 for those aged
75 and over.
- The minimum married couple's allowance, applicable to couples where one partner is 65 or over, will increase by £;40 to £;2,110. For
those over 65 it will go up by £;100 to £;5,465, and also by £;100 to £;5,535 for those over 75. Tax relief will continue to be at 10%.
- Tax codes with L, A and H suffices, all of which include the personal allowance, will be increased in bulk by 8 points from the start of
the 2002/03 tax year. Full details will be provided on form P9(X) that will come with the year-end Employer's Pack. Changes to codes
ending in P, V, Y and T, and K codes, will be effected by P9(T) forms or their electronic equivalents.
- Any changes to tax rates and thresholds will be announced in the March 2002 Budget and will be brought into effect from
week7/month2, using instructions on form P7(X). The current SR + B to D tax tables (dated May 2001) will continue to be used from
April 2002.

National Insurance rates and thresholds

- The weekly lower earnings limit will rise by more than inflation to £;75, as it is linked to the level of the basic retirement pension from
April 2002, rounded down to the nearest pound.
- The weekly upper earnings limit will increase from £;575 to £;585.
- The earnings threshold will increase from £;87 to £;89, to match the tax threshold.
- The employer contribution rate will fall from 11.9% to 11.8% from April 2002, as already announced. The standard employee rate
stays at 10% and the reduced rate at 3.85%.
- The employer contracted-out contributions will fall from 8.9% to 8.3% for salary-related pension schemes and from 11.3% to 10.8%
for money purchase pension schemes. These changes are caused by an increase in the employer rebates from 3% to 3.5% for
salary-rated schemes and from 0.6% to 1% for money purchase schemes. The contracting-out rebates for employees will continue
unchanged at 1.6%, maintaining the existing 8.4% contribution rate.

- The following Tables summarise all of the 2002/03 NI rates and thresholds:

SSP and SMP

The weekly rate of SSP will rise from £;62.20 to £;63.25 from 6 April 2002. The new rate will be payable to those who are already receiving SSP by that date and those who fall sick from that date with weekly average earnings of at least £;75.

The lower rate of SMP will increase to £;75, starting with payments of SMP for week ending Saturday, 13 April 2002. This is one of the extensive changes to maternity provisions that are being introduced in 2002 and 2003. If 90% of average earnings, the amount paid for the first six weeks of the maternity pay period, is less than £;75, the rate for the first six weeks is £;75.

As already announced, the Small Employer's Relief threshold increases from £;20,000 to £;40,000 from April 2002. Employers whose primary and secondary Class 1 NICs payments for the employee's qualifying year do not exceed £;40,000 will be able to reclaim 100% of their SMP payments, plus NICs compensation. The rate of compensation is reduced from 5% to 4.5% from April 2002.

Fuel scale charge

The charges for the provision of fuel for private motoring for 2002/03 will be announced in the March Budget, but the Chancellor gave notice that the Government is considering removing the link with engine size from April 2003 and, instead, relating the charges to carbon dioxide emission levels. A consultation Paper is expected shortly.

Construction industry scheme

Service companies operating in the construction industry that do not have a construction certificate and that are subject to IR35 rules are currently taking advantage of Extra-Statutory concession C32. This allows them to offset the tax on account deducted by the contractor against the tax and NICs due on their annual deemed remuneration rather than against corporation tax liabilities, as is required by tax law. The Government has announced its intention to put the concession into law from April 2002. See Payroll Briefing, issue 200.

Tax credits

Tax credit payments will be increased in line with inflation from April 2002. The new rates will provide a minimum income guarantee of £;227 per week for a family with one child (based on one earner in full-time work and earning the national minimum wage). However, the disabled child payment and the enhanced disability child payment will both be increased by an additional £;5.00 per week.

The threshold, below which a tax credit award is paid in full, will increase from £;92.90 per week to £;94.50 from April 2002, and from £;72.25 to £;73.50 for a disabled single person. The award is reduced by 55p for each £;1 by which net weekly income exceeds that threshold. - Payroll Briefing 214 - 13 December 2001