2015 Budget Changes to Personal Allowance and Basic Rate Limit

Our Salford based accountants have analysed the 2015 summer Budget and consider the changes to the personal allowance and basic rate limit over the next two years to be good news for most taxpayers and even better news for upper-income families. Indeed, Chancellor George Osborne expects that the changes to taxable income in the 2015 Budget will take 130,000 UK households out of the 40% taxable income bracket by 2016-17 and 160,000 families out of the higher tax rate by 2017-18. Middle-income families are expected to save £1,300 per year.

You probably have two main questions about the personal allowance and basic rate limit changes: what does that mean for your income tax bracket, and will implementing the changes carry additional costs for your business. According to our Salford based accountants, this is how the changes are going to play out over the next two years.

  • For the individual tax payer. MCC accountants predict that the upcoming personal allowance changes will benefit those in the lower- and middle-income ranges. As of 2016-17, the different rates for personal allowance will be eliminated. Previously, the rates differed depending on whether you were born before or after April 6, 1938. Now, there will be only one personal allowance rate no matter what the person’s date of birth. The two-stage incremental inflation adjustment beginning in 2016-17 will affect all tax payers, pension providers, and employers. As of April 6, 2016, the personal allowance will go up to £10,800 and increase again on April 6, 2017-18 to £11,000. Consequently, the basic rate limit and the higher threshold limit will change as well. The basic rate limits will be £31,900 for 2016-17 and £32,300 in 2017-18. The higher rate threshold at which individuals pay income tax at 40% becomes £42,700 in 2016-17 and £43,300 in 2017-18. For those with higher incomes, the personal allowance will be reduced £1 for every £2 over £100,000. Therefore, individuals in the upper income bracket of £121,600 or above in 2016-17, and £122,000 and above in 2017-18, will not receive a personal allowance. The additional rate of 45% continues to be applied to an income in excess of £150,000.

 

  • For businesses. MCC is itself an SME and so MCC accountants were particularly interested in the impact on business. Our analysis indicates that the planned changes will have a negligible impact on administrative and compliance expenses for businesses, including micro and small businesses, civil society organizations, pension providers, and employers. Any changes to personal allowances are incorporated in the PAYE tax code and changes to the tax code are already part of the standard annual routine for pension providers and employers.

 

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