Low Income Earners Lose Out Under New Tax Regulations

UK (SANEPR.com) April 30, 2008 -- Local Colchester business Compare and Save draws attention to new income tax rules, which may affect salaries earners if you earn between £5,032 and £15,074.

It’s fair to say that most people don’t know how income tax is worked out and so are unaware of how changes to the tax system will affect their earnings.

Shockingly, it is those who earn below the official poverty line of £16,492 who will be worst hit by the changes.

The old system

Every adult in the UK is entitled to a tax-free allowance (dependent on age and circumstances). This changes each tax year and increased on April 6 from £5,225 to £5,435.

You do not have to pay tax on anything you earn up to this amount, if you have the standard tax code.

Anything you earn over this amount is taxable income. In the past, pay was based on a tax-band system as follows:
Taxable Bands Allowances 2007-08 (£)

Starting Rate = 10% 0 - 2,230

Basic rate = 22% 2,231 - 34,600

Higher rate = 40% over 34,600

In the tax year 2007/08, if you earned £8,000, for example, you would not pay tax on the first £5,225. On the next £2,230, you would have paid tax at 10%. On the remaining £545.00 you would have paid tax at a rate of 22%.

This means that, under the old system, someone earning £8,000 would pay £342.90 in tax and take home £7,349.10 each year (after taking into account National Insurance deductions).

Goodbye 10% band

In the 2007 Budget, the Chancellor announced that the 10% starting rate tax band would be abolished as of April 6 2008, and instead any earnings above the tax-free allowance would be charged tax at the ‘basic rate’ level of 20% (reduced by 2%, from 22%).

This effectively means that people will be paying double the tax on £2,230 of their earnings.

Under the new changes someone earning £8,000 would now pay £513.00 in tax and take home £7,207.60 each year (after National Insurance deductions as well) meaning they would be £141.50 worse off each year.

This is even taking into account the fact they have gained an extra £46.85 in their annual pay packet as a result of the increase in the tax-free allowance from £5,225 to £5,435.

Using a tax calculator which shows year on year differences, we researched which salaries showed a loss under the 2008/09 figures compared to the figures for the 2007/08 tax year.

The research indicates those earning between £5,932 and £15,074 a year will find their monthly pay packets lighter from now on, with year-to-year losses ranging from £0.02 to £152.40.

Emma Skinner, editor at compareandsave.com said: “Compareandsave.com was shocked to learn that the new tax changes were going to affect those living below the poverty line.”

“The recent increase in prices by the big six energy companies, and the increase in the cost of mortgage repayments, will now have more of a negative impact on those people in the affected salary bracket as the tax changes reduce the pay they receive. This is going to send more people spiralling into financial difficulties.”

“We think those affected by these issues would benefit from managing their money in the most effective way possible by budgeting their monthly outgoings and comparing financial products for cheaper and more cost-effective deals.”

Notes to editors:

• Compareandsave.com, a trading name of Freedom Marketing, is a personal finance website with over 3 years experience and more than six million readers in the UK alone.

• The site’s main aim is to deal with your money matters

• More than one million product switches have been carried out on the site

• Finalist for the Fast Growth Business Awards in the category of ‘Online Business of the Year’

For more information contact:
Emma Skinner – Online Editor
Email: emma@compareandsave.com
Tel: 01206 362502
Freedom Marketing Limited
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London Road
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