May 2008

10% Rate of Income Tax

Since the start of the tax year the basic rate of income tax has been reduced from 22% to 20% and the starting rate of 10% abolished for income except for savings and dividend income.

The government has faced opposition over the tax rate change which was announced in the 2007 Budget.  Those on low wages and some pensioners are receiving less net income than they did before the end of the tax year. The change has faced much criticism as not all those who lost out on the removal of the 10% band for earnings are able to claim tax credits to supplement their income.

Around 40 MPs apparently signed a motion challenging the decision which according to MPs left more than five million low earners worse off. The government has announced that it will “compensate” those individuals who are worse off. It is unclear quite how this compensation will work due to the individuals differing personal circumstances.

We will keep you informed of developments.

Internet Link:

BBC news and Financial Times article