Posted: Thu May 15, 2008 3:58 pm Post subject: Personal Allowance Changes
I thought I understood PAYE quite well, but now I am not so sure. The recent increase to personal allowances was £600 and to ensure higher rate tax payers did not benefit the basic rate limit was to be reduced by £600 - that seemed clear enough to me. But now after looking on HMRC website the issue is confusing, is the limit being reduced by £600 or by £1200 - http://www.hmrc.gov.uk/news/may13.htm
Am I missing something or are HMRC contradicting themselves ??
Posted: Fri May 16, 2008 8:33 am Post subject: Personal Allowance changes
The changes will be covered in next week's newsletter but, with regard to this specific question, here is an extract:
Quote:
- the personal allowance will be increased by £600, from £5,435 to £6,035, giving a new emergency tax code of 603L
- the basic rate limit, the amount of earnings on which 20% tax is due, will be reduced from £36,000 to £34,800, and, as a result,
- the higher rate threshold, the point from which 40% tax is due on earnings (i.e. the sum of the personal allowance and the basic rate limit), will be reduced from £41,435 to £40,835.
Thanks Ian, I now see exactly why the higher tax band has to be reduced by £1200. Even though all the figures work out right I am still having a mental block on why it is £1200 but I am sure it will all become clear in time.
Posted: Fri May 16, 2008 9:15 pm Post subject: Personal Allowance changes
My notes are not clear enough then! Tax at 20% is currently payable on earnings between £5435 and £41,435 - a bandwidth of £36,000. The lower limit is going up by £600, to £6,035, and the top limit is coming down by £600, to £40,835, so the bandwidth itself is reduced by £1200. _________________ Ian Congreave, PayPerShop owner
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