For many employed individuals who are checking their payslip this month it should include a welcome bonus of a £60 reduction in their income tax deduction. The reason for this is the increase in the personal allowance which finally took effect for paydays from 7 September. Don’t expect the bonus each month as the effect for October onwards will be a reduction in tax of £10 a month!
However not everyone will see the benefit as higher rate taxpayers, although benefiting from the increase in their personal allowance, will be paying more tax at the higher rate of 40% due to a change in the higher rate threshold.
As has been widely reported the increase in personal allowance from £5,435 to £6,035 means that the majority of basic rate taxpayers will be £120 better off for the current tax year. The increase is designed to compensate those taxpayers who were worse off following the removal of the 10% starting rate of tax from non-savings income.
HMRC published some guidance for both employers and employees on the changes and this can be found using the link below.
Please get in touch if you require any clarification of the new rules.