Pre-Budget Report 2008 - Further information on rates from April 2009

Written by Ian Congreave - Filed under: Pre-Budget Reports on December 8th, 2008

We have some additional information and also some adjustments to make to the information given in last week’s newsletter on the new tax and NICs rates that come into force from 6 April 2009.

The legislative change to the personal allowance (in the Income Tax (Indexation) (No. 3) Order 2008, shows an increase to £6,345. This is the statutory increase, in line with the rate of retail inflation. The additional £130, lifting the personal allowance to £6,475 as promised by the Chancellor in the Pre-Budget Report, requires separate Parliamentary approval.
The lower Married Couple’s Allowance, where one spouse is aged less than 75 and was born before 6 April 1935, will cease to have effect during the 2009/10, even though it has been increased in legislation to £6,865. All remaining recipients of this allowance will reach age 75 during the 2009/10 tax year and will therefore qualify for the higher allowance for those age 75 and over.
The monthly rate of the NICs earnings threshold (ET) is confirmed as £476, not the unconfirmed figure shown in last week’s Table.
The monthly rate of the NICs upper earnings limit (UEL) is confirmed as £3,656, not £3,658 as would be the case if the current statutory calculation rules were used. HMRC has confirmed in writing to us that, as a result of the alignment of the annual UEL with the higher rate tax threshold, the annual value of the UEL will be used in future to calculate the values for other earnings periods, not the weekly value as at present. The monthly value is now calculated, as we understand it, by dividing the annual value by 12 and rounding to the nearest whole £ - the same calculation as is used for the ET values.
In the same way, the fortnightly and four-weekly equivalent rates of the UEL are confirmed as £1,688 and £3,375 respectively, by dividing the annual value by 52, multiplying by 2 or 4, and rounding to the nearest whole £.
As explained last week, from April 2011, the NICs earnings threshold (ET) is to be realigned with the personal tax allowance. The official announcement of this change refers specifically to the realignment of the primary earnings threshold. The legislation draws a distinction between the primary threshold and the secondary threshold, the latter being the level at which employers start to pay NICs. The distinction is academic currently as both limits are set at the same level - £110 from April 2009. It would appear, therefore, that, from April 2011, only the primary ET will be aligned with the personal tax allowance, but the secondary ET will not be increased to the same level. Employers will, as a result, start to pay NICs at a lower level of earnings than employees.

The following adjusted Tables and their explanatory footnotes should be used in place of those published in last week’s newsletter.

* The tax relief on the married couple’s allowances is restricted to 10%.
⁺ Not applicable, all in this category will reach age 75 during the 2009/10 tax year

* These values are specifically defined in statute. All other values are calculated according to statutory uplift and rounding rules. UEL calculation rules are to be changed for 2009/10.
¹ The weekly LEL is set at the rate of the basic state pension and rounded down to the next whole pound. The pension rate for 2008/09 is £90.70, giving an LEL of £90. The pension rate for 2009/10 is £95.25, giving an LEL of £95. From (likely) 2012/13, the link with pensions will be removed and increases will be at the discretion of the Treasury, subject to Parliamentary approval.
² The alignment between the earnings threshold (ET) and the personal tax allowance was lost in September 2008 when the personal tax allowance was increased to £6,035 – equivalent to £116 per week. The primary ET, but not the secondary ET, will be realigned in 2010/11.
³ Up to the 2008/09 tax year, the UEL was normally increased in line with inflation but was limited by legislation to an amount that could not exceed 7½ times the ET. The National Insurance Contributions Act 2008 repealed this link with the ET with effect from the 2009/10 tax year and increases are at the discretion of the Treasury, subject to Parliamentary approval. The increase from April 2009 to £43,875 aligns the UEL with the higher rate tax threshold, i.e. the level at which earnings become liable for higher rate tax.

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Written by Ian Congreave -

Filed under: Pre-Budget Reports on December 8th, 2008