The 10p tax band explained
- Created on Wednesday, 23 April 2008 02:00
But when it comes to numbers we have to hold our hands up in despair on occasion – for example if asked to explain the 10% (10p) tax band.
Fortunately, we have access to accounting expertise and we have set out below a clear explanation of the tax band change for people who are struggling to understand it. In 2007/2008 everyone who earned enough was entitled to the 10% tax band (on the first £2,230 of income above the personal allowance).
In 2008/2009 the loss of this tax band will cost extra tax on most salaries up to £16,499. Most people earning more than £16,500 will pay less tax.
From 6 April 2008 the amount you can earn before you start to pay tax has been raised from £5,225 a year to £5,435. At the same time the 10% tax rate has ended and the basic rate of tax has been lowered from 22% to 20%.
So, as an example, if your wage was £8,000 in tax year 2007/2008, after taking away your tax free allowance of £5,225 you would have paid tax on £2,775 (£8,000 minus £5,225).
The first £2,230 would have been taxed at 10% which equals £223.
The remaining £545 would have been taxed at 22% which equals £119.90
So you would have paid £342.90 tax on the £8,000 you earned in 2007/2008.
With the new tax rates, if your wage is still £8,000 in 2008/2009, after taking away your tax free allowance of £5,435 (raised from £5,225 in 2007/2008), you will pay tax on £2,565, at 20% which equals £513. So you will have £170.10 less this year than last (£513 - £342.90).
This is £14.17 less each month.
In 2008/2009, most people earning less than £16,500 will be worse off after tax than they were in 2007/2008 and those earning £16,500 and above could be better off.
Recent survey results from national media sources shows that in 2007 the 1,000 wealthiest people in Britain had a total wealth of £412 billion (£412,000 million). That is four times more than they had in 1997.