Why I Think the UK Tax Threshold Should Be £12,646

Written by Karen Bryan

tax threshold ukThe current personal tax threshold in the UK is £7,475, due to increase to £8,105 for the next tax year (6 April 2012 – 5 April 2013), an increase of £630. This equates to around another £120 in your pocket per year, which is barely going to cover inflation of around the 5% mark.

Tthe Government has said they are working towards a personal tax allowance of £10,000 by the end of the current Parliament (May 2015 at the latest).  I don’t believe that you should have to pay tax until you earn enough to live on.

Looking at someone aged 21+ currently working full time on the minimum wage, say 40 hours a week on £6.08 an hour. Their pay before deductions will be £243.20; the first £143.75 of their pay will be tax free but they will pay £19.89 tax ( 20% of the remaining £99.45).

There would also be 11% National Insurance Contributions (NICs) payable on earnings above £102 a week which would mean another deduction of £15.53 (11% of £141.20), reducing tax home pay to £207.78.

I just don’t see who could live on £243.20 a week never mind £207.78. You’d be struggling to meet cover your living expenses on that level on income, with little opportunity to start saving money or build up a pension.

What I’d like to see is a tax threshold  based on what is considered to be enough to live on, or at the very least based on working 40 hours a week at the adult minimum wage.That would equate to a tax threshold of £12,646 (i.e. £243.20 a week) for the tax year 2011 – 2012, never mind the proposed £10,000 for the tax year 2014 – 2015.

I’d also like to see an large increase in the NICs threshold but acknowldge that could cause problems for eligiblity for a state pension. Currently in the UK you need to pay 30 years of NICs to get the full state pension at retirement.