Articles of Interest

Changes to Income Tax and NIC Rates

The thresholds of PAYE (Pay As You Earn) and National Insurance contributions (NICs) will change from the 6th of April 2006.

From the beginning of the new tax year (commencing 6 April 2006) the new tax rates will be as follows:
- Up to £2,150 for the starting rate - 10 per cent
- £2,151 - £33,300 for the basic rate - 22 per cent
- The higher rate - 40 per cent - applies for earnings over £33,300

Allowances of personal income tax will be raised to £5,035 for people under the age of 65, and to £7,280 for ages 65-74.

The married couples allowance, where either partner was born pre 6th April 1935 and is aged no more than 75, will increase to £6,065.

This means in the tax year 2006-7 a typical person under the age of 65 can earn £40,485 per year before paying the higher rate income tax of 40%.

NIC rates will increase in parallel with inflation as the following levels express:
- £97 per week for the primary and secondary thresholds
- £84 per week for the primary Class 1 lower earnings limit
- £645 per week for the primary Class 1 upper earnings limit
- £4,465 per year for the Class 2 small earnings exception

People in self-employment will experience the flat rate of Class 2 contributions remaining at 2005/06 levels, ie £2.10 per week. The special rate of Class 2 NICs for share fishermen will continue at the 2005/06 level of £2.75 per week.

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