New tax measures come into force this month that should see about 22 million people receive a rebate of around £60.
New tax measures come into force this month that should see about 22 million people receive a rebate of around £60.
It all stems from the U-turn by the chancellor on plans to scrap the lowest 10 pence tax band, following pressure from backbench MPs to ease its impact.
It all stems from the U-turn by the chancellor on plans to scrap the lowest 10 pence tax band, following pressure from backbench MPs to ease its impact.
The new measures will mean basic rate taxpayers see a tax saving of £120.
The new measures will mean basic rate taxpayers see a tax saving of £120.
They will receive a lump sum of £60 in their September pay packet and will then see their net pay rise by £10 per month for the rest of this tax year.
They will have £60 less taken from their September pay packets and will then see their net pay rise by £10 per month for the rest of this tax year.
The effective cash-back comes because personal allowances for basic rate taxpayers go up by £600 to £6,035 from 7 September.
The effective cash-back comes because personal allowances for basic rate taxpayers go up by £600 to £6,035 from 7 September.
Self-employed taxpayers will not feel the benefit until they start paying tax from January 2009.
Self-employed taxpayers will not feel the benefit until they start paying tax from January 2009.
But so far the tax changes only apply for this financial year.
But so far the tax changes only apply for this financial year.
Good news?
Good news?
Critics of Chancellor Alistair Darling's U-turn say that these tax rebates will also benefit middle-income taxpayers as much as those on smaller incomes.
Critics of Chancellor Alistair Darling's U-turn say that these tax rebates will also benefit middle-income taxpayers as much as those on smaller incomes.
Taxpayers with another £60 in their pocket may well go out and spend it. Chris JonesTax advisers Lexis Nexis
Taxpayers with another £60 in their pocket may well go out and spend it. Chris JonesTax advisers Lexis Nexis
It will also punch an estimated £2.7bn hole in the national finances as Britain faces a deep economic downturn.
It will also punch an estimated £2.7bn hole in the national finances as Britain faces a deep economic downturn.
"When the chancellor put this budget together he wasn't expecting to lose £2.7bn, but I'm sure when he re-jigged his numbers, he will take account of this extra money," said Chris Jones of tax advisers Lexis Nexis.
"When the chancellor put this budget together he wasn't expecting to lose £2.7bn, but I'm sure when he re-jigged his numbers, he will take account of this extra money," said Chris Jones of tax advisers Lexis Nexis.
"However, what we need to bear in mind, it could be good news for the economy.
"However, what we need to bear in mind, it could be good news for the economy.
"Taxpayers with another £60 in their pocket may well go out and spend it. That could increase High Street profits.
"Taxpayers with another £60 in their pocket may well go out and spend it. That could increase High Street profits.
"So it could in some way balance it [the cost of the rebate] out, but probably not to the full amount."
"So it could in some way balance it [the cost of the rebate] out, but probably not to the full amount."
The 22 million people who are supposed to benefit from this change are the basic rate taxpayers who pay tax at a rate of 20% and whose incomes are below the threshold for paying the higher rate tax of 40%.
This is far more than the 5.3 million people originally estimated to have been paying more tax now that the 10p tax rate has been abolished.
Higher earners
Higher earners
The 10p tax band was scrapped by Gordon Brown in his final budget as chancellor before becoming prime minister last year, at the same time as he cut the standard rate of income tax from 22% to 20% from April this year.
The 10p tax band was scrapped by Gordon Brown in his final budget as chancellor before becoming prime minister last year, at the same time as he cut the standard rate of income tax from 22% to 20% from April this year.
The £60 rebate is due to arrive this month
As it became clear that this would still leave millions of the lowest paid worse off than before, the government was forced in May to change its policy.
As it became clear that this would still leave millions of the lowest paid worse off than before, the government was forced in May to change its policy.
To offset the negative effect of abolishing the 10p tax rate, Chancellor Darling announced that the personal tax allowance would be increased by £600 to £6,035.
To offset the negative effect of abolishing the 10p tax rate, Chancellor Darling announced that the personal tax allowance would be increased by £600 to £6,035.
To stop higher rate tax payers also benefiting, the starting point for the 40% tax rate has been cut by £600.
To stop higher rate tax payers also benefiting, the starting point for the 40% tax rate has been cut by £600.
At the start of this tax year, the higher rate began at an income of £41,435.
At the start of this tax year, the higher rate began at an income of £41,435.
This would have been pushed up to £42,035 as a result of the £600 personal allowance increase, but will now start at £40,835 instead.
This would have been pushed up to £42,035 as a result of the £600 personal allowance increase, but will now start at £40,835 instead.
These changes to the personal allowance, and the adjustment for higher rate tax payers, initially apply only to the rest of the current tax year.
These changes to the personal allowance, and the adjustment for higher rate tax payers, initially apply only to the rest of the current tax year.
Employees who look closely at their pay slips will see the changes made by alterations to their personal allowances and their tax codes.
Mr Darling has yet to decide if, in his Pre-Budget Report this autumn, he will make any further changes to personal tax allowances next year or simply leave things as they are.
Mr Darling has yet to decide if, in his Pre-Budget Report this autumn, he will make any further changes to personal tax allowances next year or simply leave things as they are.
What will you do with your £60?
What will you do with your £60?
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