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Taxpayers compensated in 10p tax U-turn

Individuals are to be compensated for the Government’s decision to abolish the 10p income tax rate.

Southampton-based chartered accountancy and tax advisers, HWB is informing people that part of the package of measures includes an increase in the annual personal allowance of all basic rate taxpayers.

Tracy Jenkins, tax director for HWB, explains: “The personal allowance for the tax year 2008-2009 will be increased to £6,035 from £5,435, a compensation equivalent of £120 for each basic rate taxpayer. There is no increase in the amount of tax higher rate taxpayers are liable to pay.

“The Government’s concession is good news for the majority of people, especially as the move applies to the entire financial year, and is backdated to April. It was estimated that 4 million people were worse off by the abolition of the 10p tax rate, however this announcement has left 22 million basic rate taxpayers better off.”

According to the Chancellor, basic rate taxpayers will see the benefits of the new measures in September. There will be an initial one-off increase of £60 to monthly salaries and an extra £10 per month for the rest of the financial year.

There is no increase in the amount of tax higher rate taxpayers are liable to pay. The threshold limit, however, for the higher rate band has been reduced from £36,000 to £34,800.

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