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Emergency Budget 2010: Income Tax
Wednesday, June 23rd, 2010
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Allowances and thresholds
From April 2011, the personal allowance for individuals under age 65 will increase by £1,000, from the current £6,475 to £7,475. The change is expected to take 880,000 people out of income tax altogether. This increase is a major step towards the coalition government’s longer term policy objective of increasing the personal allowance to £10,000 and suggests that the intention is to reach that target by April 2014.
The personal allowance increase is intended solely to benefit basic rate taxpayers and, to prevent higher and additional rate taxpayers benefiting, the basic rate limit (currently £37,400) will be set at £1,000 less than it would otherwise be from April 2011. This reduction is forecast to be £2,500 but the precise figure will not be clear until the September 2010 RPI increases are announced. The higher rate threshold will be frozen in 2012/13 (as announced in the March 2010 budget) and the basic rate limit will also be frozen in 2013/14.
The Budget documents state that the 50% additional income tax rate “will remain in place for the time being.”
There was no reference made in the Budget speech or documents to the Conservative’s plan to introduce transferable tax allowances for married couples. The Liberal Democrats were opposed to this measure and presumably there is no certainty that the proposal can be enacted.
Seafarer’s Earnings Deduction
The Seafarers’ Earnings Deduction provides 100% UK tax relief on earnings from carrying out duties as a seafarer wholly or partly outside the UK, during an eligible period. One of the qualifying conditions for the deduction is that the claimant must be ordinarily resident in the UK.
The 2009 Pre-Budget Report announced that, in order to ensure the provisions are compatible with the EU Treaty, this condition will be extended so that seafarers who are EU or EEA residents can claim the deduction on their earnings as a seafarer that are liable to UK income tax. The measure did not appear in the Finance Act 2010 and will now be included in the Finance (No. 2) Act 2010.
PAYE Review
The Government has confirmed its desire to explore how PAYE could be improved in order to reduce costs and make the system easier for employers and HMRC to administer. As an initial step, the Government intends to consult with employers and payroll providers in summer 2010 on mechanisms that could support more frequent or real time PAYE data.
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