This 10p Tax thingmy

[supernothing]

Can anyone explain whats going on with the 10p tax rate being cut?

From what I can gather: there is currently a 10% tax rate for low earners (between 5G and 19G a year) but this rate is going to be cut, meaning that the same low earners will need to pay a 20% rate of income tax instead. Some people in this category, those with kids mostly, will benefit through tax credits - but those without kids will lose that extra 10% pretty much without compensation.

Is this whats happening?

I assume this will affect a lot of AN users. People who work in bars, etc.

[m0nkeymafia]

In 2007/2008 there was a 10% tax rate for people who earned £0-2,230, and then 22% for £2,231-£34,600 followed by 40% for over £34,600. This year the 10% starting rate has been abolished, but the basic rate has been reduced to 20%. The basic rate now applies from £0-£36,000 and the higher rate on income over £36,000.

For the income range you specified, it will mean that those people will be paying 20% tax this year rather than the 22% they paid last year.

[supernothing]

Originally Posted by m0nkeymafia

For the income range you specified, it will mean that those people will be paying 20% tax this year rather than the 22% they paid last year.

Both the Guardian and BBC websites state that single, childless people under 25 (those inelligible for tax credits) in the range I specified would be the 'main losers'. If they are going from 22% to 20% how is this the case?

http://www.guardian.co.uk/politics/2...economy.labour
http://news.bbc.co.uk/1/hi/business/7358688.stm

[djtoast]

Originally Posted by m0nkeymafia

In 2007/2008 there was a 10% tax rate for people who earned £0-2,230, and then 22% for £2,231-£34,600

for clarity, nobody pays tax on the first £5,225 they earn - so it was 10% on the first £2,230 after that, etc

But yeah, it'll screw people earning lower amounts. Not a very socialist move from a "Labour" former chancellor / prime minister.

If they are going from 22% to 20% how is this the case?

it used to be that you'd pay 10% tax on the amount between £5,225 and £7,430 - ie you'd pay £200 tax for that section of your earnings. Now you'll pay 20%, which is £400, for that bit. So you're £200 worse off.

If your entire earnings are £7,430, that's the end of the story.

If you earn four grand more than that -if your salary is £11,430 - you're then paying 20% instead of 22%, ie a further £800 in tax instead of £880, so you're saving £80 on that portion of your income... so you're still £120 worse off overall.

etc.

There is a point where yeah, the savings on 20% rather than 22% overcome the £200 loss that that first bit of tax cost you, but obviously that happens once you're earning an amount that arguably makes you more able to affford it anyway.

[supernothing]

Ahhh i see.

Next question. Why is income tax put into these blocks rather than on a sliding scale? Surely there is more rationale for taxing someone who earns 35,000 pounds a closer percentage to someone who earns 37,000 as there is for charging them the same percentage as someone who earns 5,000?

[triggerhappy]

This from the BBC site sums it up briefly:

Winners:
Most people/ with incomes of £18,000+
Under £18,000 but aged 65+ and therefore eligible for higher personal allowances
Under £18,000 but with young children and therefore eligible for child tax credits
Losers:
Under £18,000 and ineligible for working tax credits because under 25
Retired early and therefore ineligible for higher personal allowances
Part-timer working insufficient hours to qualify for tax credits

Budget calculator here.

[Puppy]

according to that calculator my hubby is £333 a year better off, Result.

I'm a scadging student so we win.

[Semprini]

This year's personal allowance is £5,435. If we assume the 10% rate band had grown at the same rate it had in previous years, it'd be £2320 (which is what it is for savings income, incidentally - that's been retained).

So the 10% rate band would have cost you £232 in tax. As it is, at 20% it's costing you £464. So we're £232 down. To make that amount back with the 2% saving on the basic rate, you need to have £11,600 at basic rate, or £13,920 of taxable income.

When we add that to the personal allowance, it shows that the break even point for not losing out on this is an annual income of £19355.

[Rowsbette]

Damn, even though I'm a student I'm fairly sure I've earned over the £5,500 mark this year, so I'm gonna lose out. Is this coming into play on the next set of tax returns we put in then? I know 40%s a fair whack but I reckon they should bring in another tax band for millionnaires, instead of scraping wee bits back from the people who aren't earning too much already.

[supernothing]

Don't be rediculous, the rich owe this country nothing!

[McLeary]

Originally Posted by supernothing

Ahhh i see.

Next question. Why is income tax put into these blocks rather than on a sliding scale? Surely there is more rationale for taxing someone who earns 35,000 pounds a closer percentage to someone who earns 37,000 as there is for charging them the same percentage as someone who earns 5,000?

That's Communist talk, son


*blacklists*

[Semprini]

Originally Posted by Rowsbette

Is this coming into play on the next set of tax returns we put in then?

If you fill out self assessment returns, this will kick in on the ones issued in April next year.

[Rowsbette]

Cool, cheers.

I'll hopefully get my far more savvy mum to fill mine in, it amazes me how much stuff's involved in being a GROWN UP that you don't ever learn in school. She tried to show me last time, but it seemed far too complex for the likes of me.

[mischief]

Originally Posted by Rowsbette

Cool, cheers.

I'll hopefully get my far more savvy mum to fill mine in, it amazes me how much stuff's involved in being a GROWN UP that you don't ever learn in school. She tried to show me last time, but it seemed far too complex for the likes of me.

Do it online, easy and it does the calculation for you.

[Shannow]

Sake, just realised how much of my earnings will het sooked away by tax. Thoufgh apaprantly I'm better off by a hundred quid next year.