Services: Basic Rate Tax changes

The government announced in its 2007 budget that the basic rate of tax would reduce from 22% to 20% from 6 April 2008 meaning an increase in take home pay if you are an employee. This change also affected the tax relief on personal pension payments from that date.

Individual pension scheme members agree to a gross pension contribution on their application form, paid net of basic rate tax. When this tax change was introduced in April 2008 it meant that individuals would need to increase their net cost to maintain the same gross contribution, however this increase should have been more than offset by an increase in take home pay.  For example, to maintain a gross individual monthly contribution of £100.00, the net deduction would have been  increased from £78.00 to £80.00 per month from April 2008

Employer and salary sacrifice contributions will be unaffected as these are paid gross of tax relief.

Another major change from 6 April 2008 is an increase in the National Insurance (NI) Upper Earnings Limit. Previously, NI was paid at a rate of 11% on salaries up to £34,840, with an additional 1% on earnings above this amount. The threshold increased in April 2008, meaning that those earning up to £40,040 will now pay a full 11% on their salary up to this amount.