HMRC have now issued further guidance on the increase in the personal tax allowance which is due to take effect from 7 September 2008.
The guidance is aimed at both employers and employees. Although the increase takes effect for pay dates from 7 September onwards the change will effectively be backdated for the majority of individuals until the beginning of the tax year.
As has been widely reported the increase in personal allowances from £5,435 to £6,035 will mean that the majority of basic rate taxpayers will be £120 better off for the current tax year. The increase is designed to compensate those tax payers who were worse off following the removal of the 10% starting rate of tax from non-savings income. Higher rate taxpayers will not be better off following the increase in personal allowances due to a corresponding reduction in the point at which taxpayers start paying the higher rate of tax of 40%.