Enterprise Nation

Next month, new changes will be implemented to personal tax allowances and bandings, as part of the Chancellor’s measures to offset the effects of the removal of the 10p in the pound tax band. To tell us more – and make it as straightforward as it possibly can be – here’s Alan Young.

Personal Allowances for the 2008-09 tax year will be increased, by £600, to £6,035 (from the current £5,435). This will coincide with a reduction of the basic rate tax band limit from £36,000 to £34,800. (This is the income level, over which, we will pay higher rate tax).

If you are an employee, the changes will take effect on the first day on or after 7 September 2008, and will be back dated to the beginning of the tax year (April 2008). As self employed, these changes will be reflected in our 2008-09 Self Assessment Tax Return.

The changes will equate to an annual tax saving of around £120 per year (or £2.30 per week). Due to the backdating of the changes, depending on the date and amount they are paid, most employees will see a £60 or £70 reduction in their tax bill in the month of September or October respectively.

These changes are designed to benefit basic rate tax payers only. Higher rate tax payers will see no benefit at all, as the higher rate tax threshold has been reduced proportionately to counteract the increased personal allowances.

• Alan Young,  1st Addition