Inland Revenue 1
INCOME TAX ALLOWANCES AND NATIONAL INSURANCE CONTRIBUTIONSTax allowances
The Chancellor today announced that from April 2001 the income tax personal allowance would be increased to £4,535, in line with indexation. This means that all taxpayers will be able to have income of at least £87 a week in the tax year 2001-02 before they pay income tax. The Government has already announced that it will be introducing the Childrens Tax Credit from April 2001. This will benefit about 5 million families and will be worth up to £442 off their tax bill.
As part of a package of measures for pensioners, the Chancellor also announced that age-related tax allowances for 2001-02 will be increased in line with indexation. And, to accompany the introduction of the Pension Credit from 2003, the Chancellor announced proposals, subject to consultation, to increase the personal allowances for people aged 65 or more by £240 over indexation in 2003-04. Those new levels of allowance would then be uprated each year for the remainder of the next Parliament by reference to the rise in earnings.
The March 1999 Budget announced a package of National Insurance reforms
designed to improve work incentives for employees and reduce burdens on
employers. As part of this package, the starting point for employees'
National Insurance contributions (NICs) will be aligned with that for
employers and the income tax personal allowance from April 2001. This
means that the starting point for both employees and employers'
NICs in 2001-02 will also be £87 a week.
The income tax personal allowance will rise by £150 in 2001-02, in line with the increase in the Retail Prices Index for the year ended September 2000.
The alignment of the income tax personal allowance and the starting point for employees and employers' NICs means that, in practice, the amount of the allowance now needs to be announced in the autumn, to give employers time to implement the threshold.
To simplify the tax system for older taxpayers, the Chancellor has decided to announce the levels of age-related tax allowances for 2001-02 and 2002-03 in his pre-Budget reports. So he announced today that the age-related allowances and the income limit for 2001-02 will rise by indexation. The personal allowance for someone aged 65 to 74 will rise by £200 to £5,990 and the allowance for someone aged 75 or more by £210 to £6,260. The 2001-02 levels of age-related allowances, and the income limit, are set out in Annex 1.
For 2003-04, as part of a package of tax and benefit reform designed to bring the two systems closer together, the Chancellor has announced proposals to raise the personal tax allowances for people aged 65 or more by £240 over and above indexation. On current forecasts, that would mean the allowance for someone aged 65 to 74 rose to £6,560 and that for someone aged 75 or more to £6,850. A basic rate taxpayer with income below the income limit would gain £1 a week from the increase and over 3 million people would benefit. For the remainder of the next Parliament, the age-related personal allowances would then rise each year by reference to the increase in earnings rather than prices.
The Paymaster General, Dawn Primarolo MP, announced the following changes to National Insurance Contributions today.
For employers and employees:
· In line with the Social Security Contributions and Benefits Act 1992, the Lower Earnings Limit for primary Class 1 contributions is to be raised to £72 a week. It is set at the level of the basic Retirement Pension for a single person from April 2001 and rounded down to the nearest pound.
· The Primary Threshold for primary Class 1 contributions will be aligned with the Secondary Threshold for secondary Class 1 contributions and the weekly amount of the income tax personal allowance at £87 a week. This means that no tax or Class 1 contributions will actually be paid on earnings below this level.
· In line with the Chancellors announcement in the 1999 Budget, the Upper Earnings Limit for primary Class 1 contributions will be raised to £575 a week to ensure a fair base of earnings liable to such contributions.
· The rate of secondary Class 1 contributions payable by all employers is to be reduced by 0.3 per cent, from 12.2 per cent to 11.9 per cent.
For the self-employed:
· The rate of Class 2 contributions is to remain at £2 a week.
· Self-employed people with earnings below the annual Small Earnings Exception can apply to be exempted from paying Class 2 contributions. This limit will be raised by £130 to £3,955.
· The annual lower and upper profits limits for liability to Class 4 contributions will be raised respectively by £150 to £4,535 (in line with the income tax personal allowance) and by £2,080 to £29,900, to maintain the link with employees earnings liable to Class 1 contributions and ensure a fair base for contributions by the self-employed.
For those paying voluntary contributions:
· The rate of Class 3 voluntary contributions will be increased by 20 pence to £6.75 a week.
For share fishermen:
· The special rate of Class 2 contributions, which allows them to build entitlement to contributory Jobseekers Allowance in addition to the other contributory benefits available to the self-employed, will remain at £2.65 a week.
For Volunteer Development Workers:
· The special rate of Class 2 contributions which entitles them to the full range of contributory benefits, will be increased by 25 pence to £3.60 in line with the statutory formula of 5 per cent of the primary Class 1 Lower Earnings Limit.
Although benefit expenditure from the National Insurance Fund will broadly match income, a prudent working balance throughout the coming year needs to be maintained. In accordance with section 2(2) of the Social Security Act 1993, the maximum Treasury Grant which may be made available to the Fund in 2001-02 shall not exceed 2 per cent of the estimated benefit expenditure for that year. Similar provision will be made in respect of the Northern Ireland National Insurance Fund. A draft re-rating order, accompanied by a report by the Government Actuary, will be laid before Parliament in due course.
table which sets out the rates, earnings limits and thresholds for National
Insurance Contributions proposed for 2001-02 is attached in Annex 2.
1. The announcement today confirms that the personal allowance, the age-related allowances and the income limit will be increased next year in line with statutory indexation. Income tax allowances are uprated each year in line with indexation unless legislation is passed to override its effects. Statutory indexation is based on changes to the Retail Prices Index in the year to September, so this early announcement does not affect the amount of the increase. A statutory instrument has been laid today in the usual way, confirming the effect of indexation on the personal allowance, age-related allowances and the income limit for 2001-02.
2. Estimates of the yield of National Insurance Contributions will be included in the Government Actuarys report on the draft of the Social Security (Contributions) (Re-rating and National Insurance Funds Payments) Order which will be laid before Parliament as usual.
More information on the measures proposed for pensioners can be found
in the consultative document issued today by the Secretary of State for
Social Security (The Pension Credit. A Consultation Paper.)
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PRESS RELEASE ANNEX 1
Income Tax Personal and Age-related Allowances 2001-02
* Married couples allowance given at the rate of 10%.
PRESS RELEASE ANNEX 2