Tax Cut to 20%, is it Really?

Newsletter issue - April 07.

Gordon Brown wanted his last Budget to be remembered for the dramatic cut in the basic rate of income tax from 22% to 20%, but most taxpayers will see little benefit from this tax reduction, due to the tax increases which will come in at the same time. Some points to note...

  • Wait a Year - we have to wait for over a year for the new 20% tax rate as it does not take effect until 6 April 2008. On the same day the 10% tax band will disappear for earned income, and the upper income limit for the main rate of national insurance (11% for employees) will increase to approximately £40,000. As a result of all these changes a single person on a salary of £15,000 will pay about £72 more in tax per year, but someone currently in the upper tax bracket on a salary of £45,000 will reap a net saving of £390 per year. These figures do not take account of any working or child tax credits the individual may be able to claim.
  • Rental Income - if you receive most of your income in the form of rents, you could be one of the winners from the cut in the basic rate of income tax from 2008. As rents do not attract national insurance, the reduction in the tax rate is not cancelled out by the increase in national insurance as it is for earned income.
  • Pension Contributions - the new 20% band will have a knock-on effect on personal pension contributions. Currently if you want your pension fund to receive £4,000 you make a contribution of £3,120 net of 22% tax, and the pension scheme reclaims £880. From 6 April 2008 to achieve the same payment into your pension fund, you will have to pay £3,200 net of 20% tax, and the pension scheme will reclaim £800. So you end up paying £80 more into your pension scheme for the same result.
  • Charities - will also be hit hard by the reduction in the basic rate. At present when you make a charitable gift of £100 and certify it under the gift aid scheme, the charity can claim back a further £28.20 from the Government. From 6 April 2008 the same gift of £100 will only be worth £125 to the charity, so they will lose £3.20 of income for every £100 of gift-aided donations.

What our clients say about us...

  • "Paul has provided accountancy services to my company for 2 years now. I can recommend Paul very highly; his skills as an accountant are highly detailed and professional and he is always available to provide advice. One aspect of the way Paul works that I greatly appreciate is a preference to meet face to face when there is a detailed conversation to be had. I personally find this more productive and is a benefit of working with a small accountancy firm that you wouldn't get with the large faceless providers."

    ALISTAIR FAIRWEATHER - PROGRAMME & PROJECT MANAGER, DELIVERING/RESCUING I.T. 7 BUSINESS CHANGE WITH BUDGETS UPTO £50M INC SUPPIER MANAGEMENT

  • "I couldn't ask for more from Paul as an Accountant. Paul has been accountant to Work Relief Charity Recruitment for just over a year now and is proving an invaluable asset. Accurate, knowledgeable, flexible with an emphasis on service delivery, I would recommend Paul's services to any organisation looking for an accounts professional."

    Neil Price - Managing Director at Work Relief Charity Recruitment

  • "Paul was a referral from a family member when I started my business 2 years ago. As this was the first time I had ever run my own company I was totally clueless over the financial side of matters and was worried that I may have made mistakes in any of my accounting. I needn't have worried as after enaging Paul for a set monthly fee he was always there on the end of the phone for all sorts of questions I had and no matter how trivial they were Paul gave me all the information I required and more and did an excellent and painless job at the end of my first year! Couldn't ask for any better to be honest. Just two words - hire him!!!"

    Lee Westrap MBCS - Director - Bulldog IT Services

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Booth & Co  |   The Hermitage  |   15a Shenfield Road  |   Brentwood  |   Essex  |   CM15 8AG        Telephone: 01277 224666    |   Email: info@boothandco.co.uk