Usually tax allowances and National Insurance (NIC) rates for the coming tax year are published with the Chancellor’s Autumn Statement. However this year, in a break with tradition, the Government stated that the rates for 2008/09 would not be published until the retail price index for September 2007 had become available.

Previous announcements had stated that for 2008/09 age-related personal allowances would be increased by £1,180 above inflation; that the 10% rate of income tax would be abolished for earnings and pension income (with the basic rate of income tax becoming 20%); that the basic rate band for income tax would only increase by inflation and the upper earnings limit for NIC would increase by £75 per week above inflation.

The rates were eventually announced in October and the increase in the personal allowance is just £210, taking it to £5,435. However, the really bad news is there is a large NIC band increase with the lower earnings limit for employees (the effective nil rate band for NIC) being raised by a small £5 per week to £105, while the upper earnings limit (the rate up to which employees pay NIC at 11%) rises by a huge £100 per week to £770. Employees earning over £34,840 (in the current year) will thus see a significant increase in their NIC bill for 2008/09. This means that for an employee earning in excess of £40,040 they will pay £520 more NIC under the new rates.

As summary of the key rates is below: