Reply to: Personal Allowance increased by £600

[Lewis]

No. Not at all.

There is no tax saving from the higher PA. Because dividends are not taxed in the first place and NI @ 11% still applies (of course if you have savings income of £600+, then this will indeed be a £120 tax cut).

I mean for people with a let's say a £10K salary. They will gain the £120 from the PA and lose £135 from the Higher Rate threshold = £15 worse off. To be honest, I don't meet may contractors anymore who just pay themselves the PA, it used to be the norm now it seems £10K is more common.

[MrRobin]

Just subscribe your non working wife/partner and make her prosper from your companies success! It's the way forward.

Partner works.

[chris79]

Just subscribe your non working wife/partner and make her prosper from your companies success! It's the way forward.

[MrRobin]

Where have you got this?

In his speech, he says, and I quote from the bbc site:

"However, as the £600 increased personal allowance applies not just to basic rate taxpayers but also to those paying tax at a higher rate, I am therefore reducing the threshold at which an individual starts to pay tax at the higher rate by £600. "

I think I get this now... it's relative to gross income, not taxable income -- very poor wording and use of naming thresholds / bands etc.

So what he means is that before, you would start paying 40% when your income reached £41,435 (Allowance of £5,435 + upper band of £36,000). By "reducing the threshold at which an individual starts to pay tax at the higher rate by £600" he means you would start paying 40% when your income reaches £40,835 (Allowance of £6,035 + upper band of £34,800)

So the upper band has reduced by £1,200 and us contractors paying small salary and dividends will lose out if you pay divvies over the upper rate threshold.

[dude69]

I agree, what you says sounds right about the threshold.
But it is surely £135-£120 saving from higher PA = £15 tax rise.
Assuming your salary is > (new) PA.

No. Not at all.

There is no tax saving from the higher PA. Because dividends are not taxed in the first place and NI @ 11% still applies (of course if you have savings income of £600+, then this will indeed be a £120 tax cut).

[Lewis]

hmm, thought occurs to me that when he says threshold, he means that he has actually cut the band by TWELVE hundred pounds.

That would indeed mean you start paying higher rate tax that much sooner.

It's a politician's use of language. The higher-rate is a 'band'. NICs use the word 'threshold'. Threshold means the income level at which you start paying it i.e. PA + Higher Rate Band.

So the band has actually been shrunk to £34,800 from £36,000.

What does this mean for us?

It's a tax increase. We will pay tax on our dividends £600 sooner.

So we actually end up paying £135 MORE tax per year.

Thieving Liemour b@stards

I agree, what you says sounds right about the threshold.
But it is surely £135-£120 saving from higher PA = £15 tax rise.
Assuming your salary is > (new) PA.

[MrRobin]

hmm, thought occurs to me that when he says threshold, he means that he has actually cut the band by TWELVE hundred pounds.

Where have you got this?

In his speech, he says, and I quote from the bbc site:

"However, as the £600 increased personal allowance applies not just to basic rate taxpayers but also to those paying tax at a higher rate, I am therefore reducing the threshold at which an individual starts to pay tax at the higher rate by £600. "

[dude69]

hmm, thought occurs to me that when he says threshold, he means that he has actually cut the band by TWELVE hundred pounds.

That would indeed mean you start paying higher rate tax that much sooner.

It's a politician's use of language. The higher-rate is a 'band'. NICs use the word 'threshold'. Threshold means the income level at which you start paying it i.e. PA + Higher Rate Band.

So the band has actually been shrunk to £34,800 from £36,000.

What does this mean for us?

It's a tax increase. We will pay tax on our dividends £600 sooner.

So we actually end up paying £135 MORE tax per year.

Thieving Liemour b@stards

[MrRobin]

I thought as much... so if he really wanted to make the "net effect of the changes so that the tax liability of everyone that currently pays tax at 40 per cent will be unaffected by the increase in the personal allowance" he should have decreased the 40% threshold by £1,200.

I worked that out in minutes. I wonder how many 'analysts' worked on that for Darling, and for how long, and they still got it wrong?

[dude69]

Darling says:



My calculations for as an example, a £100k salary are (Ignoring NI) --

OLD Personal Allowance of £5,435:
Gross - £100,000
Taxable - £94,565
20% Tax up to £36k - £7,200
40% Tax from £36k - £23,426
Total Tax - £30,626
NET - £69,374

NEW Personal Allowance of £6,035:
Gross - £100,000
Taxable - £93,965
20% Tax up to £35.4k - £7,080
40% Tax from £35.4k - £23,426
Total Tax - £30,506
NET - £69,494

i.e. you're £120 better off...

Has Darling fliped up AGAIN? Or am I a numpty??

No, Darling *is* a complete ******* moron.

There are two things:

* PA increased by £600. Clearly the overall taxable income is cut by £600, so that is a cut of tax of 40% on £600 = £240
* Basic rate band narrowed by £600. This is an increase of tax from 20% to 40% = 20% net. 20% of £600 = £120

Total tax cut £120.

Where did they get these retards? They are supposed to be running the country. Hundreds of billions of pounds.

Not only did they manage to turn a tax cut into a disaster, but they bodged up the fix-up job as well.

It's very simple logic to see that if you increase the personal allowance by £600, then that's £600 less to pay 40% tax on. It's exactly the same as saying that each person has earned £600 less.

Everybody in middle income PAYE jobs knows that if they get a £600 bonus they only receive £360.

Whether you add the £600 on at the beginning, or take it off at the end, it's still a 40% tax cut on £600.

So increasing tax from 20% to 40% on that same £600 doesn't balance it out, does it?

Jesus Christ.

MORON
MORON
MORON
MORON

[MrRobin]

Darling says:

However, as the £600 increased personal allowance applies not just to basic rate taxpayers but also to those paying tax at a higher rate, I am therefore reducing the threshold at which an individual starts to pay tax at the higher rate by £600.

The net effect of these changes is that the tax liability of everyone that currently pays tax at 40 per cent will be unaffected by the increase in the personal allowance.

My calculations for as an example, a £100k salary are (Ignoring NI) --

OLD Personal Allowance of £5,435:
Gross - £100,000
Taxable - £94,565
20% Tax up to £36k - £7,200
40% Tax from £36k - £23,426
Total Tax - £30,626
NET - £69,374

NEW Personal Allowance of £6,035:
Gross - £100,000
Taxable - £93,965
20% Tax up to £35.4k - £7,080
40% Tax from £35.4k - £23,426
Total Tax - £30,506
NET - £69,494

i.e. you're £120 better off...

Has Darling fliped up AGAIN? Or am I a numpty??

[MrRobin]

BR tax bracket up £600

40% tax bracket down £300

would make the thing the same.

£1,200 I think... just checking...

[LisaContractorUmbrella]

Are tax codes going to change? Will 543L become 603L?

The BBC have updated their website and this is indeed the way they are going to deal with it but it looks as though the change will not be implemented until September.

[moorfield]

Are tax codes going to change? Will 543L become 603L?

Who knows? Who cares? Gordo and Capt Darling don't seem to.

[Sockpuppet]

Are tax codes going to change? Will 543L become 603L?