What is 10p tax
The 10p tax band explained
Created on Wednesday, 23 April 2008 02:00 Here at Plain English Campaign we ponder over letters and their meaning and can usually make some sense of the most challenging jargon and gobbledygook.
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.Source: www.plainenglish.co.uk