2% Drop in Income tax (all a con) and NI

WHA

Bogof_Babe wrote: »

Why did he not even mention the 2007-8 tax free personal allowance? Higher rate is kicking in at £43K but not one word about basic rate. Surely he can't be freezing it at £5,035 same as this year?

On the Savings board a few weeks ago someone posted a link to next year's allowances, which surprised me because I always thought they were only announced on budget day. I'm sure he has always stated the revised amount in the past.

They are announced in the pre-budget review in November/December each year.

Jet

ashcarrot wrote: »

Right calculations so far: (probabily a bit off)

Based on todays allowances:

5030 Allowance (earn under that no probs)

earn between 5030 and 15k and you will be worse off (to make up on the difference of increase of 10% on the first 2k) <-- thats right isn't it

15k -> 33540k and you should be better off slightly (more so the higher to the 33540 you get)

after that if NI thresholds are increasing to 11% from 1% (can't find any data on anything to doing with this.. so may and hope to be wrong) then you will be considerably worse off?

why oh why is Mr Brown making the poorest workers worse off? surely that goes against everything this government is supposed to stand for?

What about raising the personal allowance?

Optimist

Jet wrote: »

why oh why is Mr Brown making the poorest workers worse off? surely that goes against everything this government is supposed to stand for?

What about raising the personal allowance?

He is targeting this group with working tax credits. It makes the poor more dependent on claiming. Stinks but 2p income tax cut looks good when it comes to spin!

robindunne1

To me it makes sense to get rid of the 10% bracket. It brought in very little revenue to the government and complicated things for very little return. He should have approach it by reducing it to zero instead of bringing it up to standard rate. (very much like the Tories proposed a few months ago)

As for National Insurance. This is the most unfair tax imaginable. It taxes people at a high rate the less you earn. There is nothing you can do write off against it.

Gift Aid payments are tax deductable, but you still have to pay NI on them. Even work expenses can be tax deductible, but you still have to pay NI on them.

The government pull the wool over our eyes by reducing the NI contrbution rate to 1% for higher tax payers, while the rest of us still pay 11%. What seems an acceptable level of tax for higher earners of 40% compared to 22% for the rest of us (18% difference) is quickly tempered by the difference in NI contributions of 10%. The net effect is the higher eaner only pays an 8% tax burden than the rest of us.

Also, don't forget employers contributions of 12.6%. All of a sudden it is cheaper for businessess to employ higher paid staff and give them bigger wage rises as the NI burden for the business is lower.

nej

There is a calculator on the BBC news website for determining if you are better or worse off.

Suprise suprise, I'm worse off.

Here's the link:

http://news.bbc.co.uk/1/shared/bsp/hi/business/budget_calc/html/budget_calculator.stm

WHA

robindunne1 wrote: »

Also, don't forget employers contributions of 12.6%. All of a sudden it is cheaper for businessess to employ higher paid staff and give them bigger wage rises as the NI burden for the business is lower.

Employers NIC is 12.8% on all wages paid above the lower NIC threshold - there is no higher rate and no 1% rate. The 1% rate is only for employees earnings over the upper NIC limit. So any employer pays 12.8% employers NIC on your full wages (less the first £5k) whether you earn £20k, £50k or £100k. It is actually better for employers to employ very large numbers of part timers than a smaller number of full timers.

Milarky

robindunne1 wrote: »

To me it makes sense to get rid of the 10% bracket. It brought in very little revenue to the government and complicated things for very little return.

Agreed, but recall whose idea a 10% band was?

As this comes in next year, I can only assume that he is leaving next year's uprating in allowances deliberately out of any announcement to give him/the next Chancellor the (well received) option of substantially raising those allowances at that stage

eg Now: 0% up to £5035, 10% next 2150, 22% above

2007/08 0% up to £5225 10% next [?]£2150, 22% above

2008/09 0% up to [?]£7000? 20% above that

If he justs puts the personal allowance up by 3% or so next April then you would need to earn £18k to be no worse off.

Eg 12900 @ 20% = 2150 @ 10% plus 10750@22%

5225 + 3% = 5385 + 12900 = 18285

To give back the 12% of £2150 (£258 pa) equivalent from scrapping the 10% band, the 0% would actually need to be raised by five times that (since the 'basic rate' becomes 20%, so 5 x 20% x £258 = £258) which would be £1290 - affordable

So my prediction for 2008/08 allowances are that the go to at least £6675 (5225 + 3% + 1290). That is still quite a low level at which to start paying 'tax' at 31% percent of course - and it also implies (I've just realised) that NI thresholds must be raised substantially at the same time - which is very costly to the Treasury. That need to grab a substantial slice of NI from the higher paid (and their employers) - by finally aligning 20% + 11% (31%) with the start of HR tax (40%) - was something he needed to do in 'one hit' if he was ever going to raised (and align) tax and NI starting points for the low paid.

EDIT: Yes he's virtually said that is what must happen:

I can also announce that the point at which people start paying top rate income tax will, from April 2009, not be annual income of £38,000 but 43,000; and I will align the income tax with the national insurance system with its ceiling set at the same single threshold - £43,000 - thereby creating a tax system for income that has just two rates and two thresholds

The upper threshold he will have created, the lower one already exists, but it is that I would expect to be substantially increased, and if it is less than £6675 that implies 'fiscal drag' has been used because cash is tight. Alternatively the lower threshold may be raised a bit more - but in stages over 2 years (2008 and 2009) for maximum political capital.

reddevilled

He has done the typical GB thing of having his headlines - "CT reduced by 2%" and "Tax credits up" which don't properly come in for a number of years (so he can reannounce them every 6 months until then) whilst slipping in some nasty things and also continuing to make the tax system a massive burden on small business and those needed to claim tax credits.

I can't say I'm suprised but I did hope that he would have concentrated less on getting media coverage and more on making the tax system more transparent and easier for Joe public to understand.

Tirian

I've done up a nice little graph to show how much better or worse off you will be under the new income tax regime, according to your income. I haven't included over £35,000 which is where the upper tax threshold, cause frankly if you earn that much then you can bloody well ask your accountant to work it out for you

littlesaint

That's really useful, tried to do one formyself but messed it up. Have you based these on the £5225 personal 2007-08 tax allowances or do you have info about 08-09 that I don't?