Personal Allowance and NIC changes

From 6th April 2011 there is to be an increase in the Personal Allowance for all those under 65. The amount of income that you earn tax free will be increased to £7,475 instead of the current threshold of £6,475.

There will also be changes made to the thresholds for the higher tax bands (See Table 1)

Table 1: Changes to the Tax bands

Percentage Rates Current Thresholds


New Thresholds


20% £1- £37,400 £1- £35,000
40% £37,401 – £150,000 £35,001 to £150,000
50% £150,001 and above £150,001 and above

It is estimated that approximately 750,000 people will be moved into the higher tax bracket due to the changes in the thresholds.

Anyone that earns over £100,000 will have their Personal allowance withdrawn, which will result in them paying a marginal tax rate of 60% on earnings between £100,000 and £114,950.

Anyone earning over £150,000 will pay 50% income tax.

National Insurance changes

From 6th April 2011 there will also be changes made to National Insurance Contributions. Table 2 shows how Class 4 NIC (Self employed) will be affected.

Table 2: NIC Changes

2010-2011 2011-2012
Class 4 Lower profit limits £5,715 £7,225
Class 4 Upper profit limits £43,875 £42,475
Class 4 Rate between Lower &Upper Limits 8% 9%
Class 4 rate above the Upper Limit 1% 2%

From April 2011 anyone earning under £7,225 will not have to pay NIC, however profits above this (up to £42,475) will be subject to a higher rate of 9%.

On average someone with taxable profits of £13,000 (20% tax band) will have a net saving of £260, due to these changes.  A person with profits of £25,000 (20% tax band) will have a net saving of approximately £140 and someone with taxable profits £50,000 (40% tax band) will pay almost £300 extra tax a year.

For more information on how these changes will affect you, contact us here at M.B McGrady & Co.