(See our earlier article)
In order to compensate people who had lost out from the removal of the 10% starting rate of tax, the Chancellor announced that all basic rate taxpayers under 65 would see an increase in their personal tax allowance from £5,435 to £6,035 for the current tax year.
Although this was rather a blunderbuss approach to compensation for those losing the benefit of the 10% band, it was adopted for simplicity; but the workings of the tax system mean that it is not simple to deliver the promised benefit.
Most people in employment and others who pay tax through PAYE (such as pensioners) should start to see the windfall in their first pay packet after 7 September. Weekly-paid people will get a one-off reduction or rebate of £53 and an extra £2.30 each week until next 5th April. Monthly-paid should pay £60 less tax than in August and £10 a month less in each of the remaining 6 months of the tax year.
Most people will see their tax code automatically changed on their payslips or pension payments.
So far, so good. But the tax system is not simple and there are all sorts of exceptions. Here are a few:
- The self-employed will have to wait until they submit their tax return and pay their self-assessment tax.
- Those who are not on a “cumulative” tax code, such as an emergency code or a week one/month one code (which HMRC use while they try and get more information about the taxpayer): such people will get the increases in their pay packets from September, but they will probably have to wait until after next April to receive the further £60 they are due from April to September 2008.
- Some employers may struggle to get the changes through their payroll system, in which case their employees may have to wait until later.
- Some people may have worked in the early part of the year, but are now out of work. They already have a repayment due as they will only have received a proportion of their personal allowances. They will probably need to wait until after next April and HMRC should automatically repay them. Alternatively, they can approach HMRC and ask for a repayment now.
- Some people may have ceased work and already received a tax repayment for the current year, for example, people leaving the country. They will be entitled to a further repayment. HMRC will be reworking these repayments; there is no need to make a claim.
- Those aged 65 and over have a separate higher age related allowance, which has not changed, so they should not expect a repayment. However some people with middle-to- higher incomes have their age related allowance reduced and they may then become entitled to a refund. Most of these people will already have received a new code number including their increased allowance, but some will have to wait for HMRC to review their code. Again there is no need to claim.
- Some people will be on the fringes of paying tax so that the initial refunds due to them will be less than the £53 or £60 mentioned above (effectively repaying all the tax they have paid earlier in the year).
In their guidance HMRC have been saying that taxpayers need take no action and that HMRC will ensure that everyone gets that which they are entitled. We hope they are right and LITRG will try and monitor their actions, so that all those lower income taxpayers, who this increase was aimed at, will get what they are due.
But, just in case HMRC do not manage to get everything right first time, it might be wise for everyone to take extra care to see that they have received everything they were expecting.
Contact Name: John Andrews (Tel: 0844 579 6700, Fax: 0844 579 6701)