With the tax threshold’s increase, you could be entitled to an even bigger tax rebate.
London, UK (PRWEB UK) 21 February 2012
Chancellor of the Exchequer George Osborne is expected to deliver the Coalition Government’s Budget within the next few weeks and the tax free threshold, the amount a person can earn before incurring tax, is expected to rise from £7,475 to £8,105.
The tax threshold rise is in line with the Liberal Democrats’ efforts to increase the threshold to £10,000 by 2015, supposedly by the end of the current Parliament in 2014. There had been some speculation as to the Coalition’s commitment to this pledge but it has now been widely accepted that the first such rise will be announced in the next budget.
What this means for most people is that less of your income will be taxed. For example, under the current allowance, a person earning £25,000 a year will receive £7,475 tax free and therefore incur tax on £17,525 of their yearly earnings.
As an income of £25,000 falls under the basic rate of 20%, this would mean that a person is taxed 20% on £17,525, meaning a person earning £25,000 would be taxed £3,505 a year.
However, under the new tax threshold, a person can receive £8,105 before incurring any tax, meaning that the same person on £25,000 would only be taxed on £16,895. With the same basic rate, under the new rules a person would only be taxed £3,379.
In this example, the change in threshold results in an extra £126 per year for this person, or approximately £10 per month. While this may not seem like much, if the threshold is increased to £10,000, this will mean an extra £505 a year compared to the current threshold.
News of the increase hasn’t come as a surprise but there may be further benefits than simply paying less tax, as TaxBackAgents Claims Manager Nigel Smith explains:
“While an extra £500 will be a welcome addition to the majority of people in its own right, a further benefit to the tax threshold’s increase, and one which many people aren’t aware of, is also included in the budget.
“If you’ve overpaid tax at any point in the last five years or you’re planning on leaving the country you’re eligible for a tax refund, and with the tax threshold’s increase, you could be entitled to an even bigger tax rebate.”
If in the same case as above, a person earning £25,000 a year, but the person was intending to leave the country during an existing tax year e.g. during September, the amount of tax they would be entitled to receive as a refund changes drastically.
“Under the current threshold, they would be entitled to £747 in the form of tax back. While this is undoubtedly a substantial sum of money which should be claimed, under the new threshold, this number rises to £807 and if the Coalition succeeds in raising the threshold to £10,000, the rebate rises to £1,000,” said Mr Smith.