INCOME TAX ALLOWANCES AND NATIONAL INSURANCE CONTRIBUTIONS

Tax allowances

The Chancellor confirmed today the level of income tax allowances for 2003-04. From next April, no one aged 65 or over will pay tax until their income reaches at least £127 a week.

The personal allowance for people aged 65-74 will be £6,610, £400 more than if it had been increased in line with inflation
For people 75 or over, the personal allowance will be £6,720, £240 more than if it had been increased in line with inflation.
The basic personal allowance for people aged under 65 will be frozen at £4,615.
All other personal tax allowances will increase in line with inflation.

National insurance contributions

Budget 2002 announced an increase in the rates of national insurance contributions (NICs) from April 2003.

There will be an additional 1 per cent national insurance contribution by employers, employees and the self-employed on all earnings above the NICs threshold of £89 per week. This is in addition to existing rates of contribution below the upper earnings limit for employees and the upper profits limit for the self-employed.
The starting point for both employers?, employees? and self employed NICs in 2003-04 will be frozen at £89 per week and no one will pay NICs on earnings or profits below this amount.
The upper earnings and profits limits for NICs will increase from April 2003 in line with inflation from £585 to £595 a week (£30,940 a year).
For the self-employed the rate of Class 2 contributions will be frozen for the third successive year at £2 a week.

DETAILS

Tax allowances

The basic personal allowance will be frozen at £4,615 in 2003-04.

The personal allowance for someone aged 65 to 74 will rise to £6,610, £400 over inflation, and the allowance for someone aged 75 or more will increase to £6,720, £240 over inflation. The married couple's allowances for those born before 6 April 1935 will rise in line with inflation. The maximum income a pensioner can have and still get the age-related allowances above in full (the income limit) will increase in line with inflation from £17,900 to £18,300 in 2003-04.

The blind person's allowance will rise in line with inflation.

The 2003-04 allowances are set out in the annex to this press notice.

National insurance contributions

The Paymaster General, Dawn Primarolo, today set out the level of national insurance contributions in 2003-04.

For employers and employees:

in line with the Social Security Contributions and Benefits Act 1992, the lower earnings limit for primary Class 1 contributions is to be raised to £77 a week. It is set at the level of the basic retirement pension for a single person from April 2003, rounded down to the nearest pound;
the primary and secondary thresholds for Class 1 contributions will be frozen at £89 a week, the same as the weekly amount of the income tax personal allowance. This means that no tax or Class 1 contributions will be paid on earnings below this level;
the upper earnings limit for primary Class 1 contributions will be raised to £595 a week, in line with inflation;
all employees will pay an additional 1 per cent on all their earnings above the primary threshold of £89 a week. This means that the standard rate of primary Class 1 contributions below the upper earnings limit will be 11 per cent, and above the limit will be 1 per cent; and
employers will pay 1 per cent more on earnings above the secondary threshold of £89 a week. This means that the standard rate of secondary Class 1 contributions will be 12.8 per cent.

For the self-employed:

the rate of Class 2 contributions will be frozen at £2.00 a week;
those with earnings below the annual small earnings exception can apply to be exempted from paying Class 2 contributions. This limit will be raised to £4,095;
the annual lower profits limit will be frozen at £4,615;
the self-employed will pay 1 per cent more Class 4 contributions on all their profits above the lower profits limit of £4,615. This means that the rate of Class 4 contributions will be 8 per cent on profits below the upper profits limit, and 1 per cent on profits above that limit; and
the upper profits limit for liability to Class 4 contributions at the main rate of 8 per cent will be raised to £30,940 (in line with inflation), to maintain the link with employees? earnings liable to Class 1 contributions at the main rate.

For share fishermen:

the special rate of Class 2 contributions, which allows them to build entitlement to contributory Jobseeker's Allowance in addition to the other contributory benefits available to the self-employed, will be frozen at £2.65 per week.

For volunteer development workers:

the special rate of Class 2 contributions which entitles them to the full range of contributory benefits, will be increased by 10 pence to £3.85 in line with the statutory formula of 5 per cent of the primary Class 1 lower earnings limit.

For those paying voluntary contributions:

the rate of Class 3 voluntary contributions will be increased by 10 pence to £6.95 a week.

A draft re-rating order, accompanied by a report by the Government Actuary on the effect the order will have on the National Insurance Fund, will be laid before Parliament in due course.

The annex to this press notice sets out rates, earnings and profits limits, and thresholds for national insurance contributions for 2003-04.

NOTES FOR EDITORS

The Chancellor set out the policy for income tax allowances and national insurance contributions in the 2002 Budget. The announcement today confirms those figures. Income tax allowances are uprated each year by indexation unless legislation is passed to override its effects, as with the personal allowances in Finance Act 2002. Statutory indexation for 2003-04 is based on changes to the Retail Prices Index in the year to September 2002 (1.7 per cent). A statutory instrument - The Income Tax (Indexation) (No. 2) Order 2002 - has been laid today, confirming the effect of indexation on the blind person's allowance, the married couples? allowances and the income limit for 2003-04.

Estimates of the yield of national insurance contributions will be included in the Government Actuary's report on the draft of the Social Security (Contributions) (Re-rating and National Insurance Funds Payments) 2003 Order, which will be laid before Parliament.

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ANNEX

Income tax personal and age-related allowances 2003-04 (£ per year)

	2002-03	Change	2003-04
Personal allowance (age under 65)	4,615	(0)	4,615
Personal allowance (age 65-74)	6,100	(+510)	6,610
Personal allowance (age 75 and over)	6,370	(+350)	6,720
Blind person's allowance	1,480	(+30)	1,510

Married couple's allowance* (aged less than 75 and born before 6 April 1935)	5,465	(+100)	5,565
Married couple's allowance* (aged 75 and over)	5,535	(+100)	5,635
Married couple's allowance* - minimum amount	2,110	(+40)	2,150

Aged income limit	17,900	(+400)	18,300

* Married couple's allowance given at the rate of 10 per cent

National insurance contributions

Item	2003-04
Lower earnings limit, primary Class 1	£77 per week
Upper earnings limit, primary Class 1	£595 per week
Primary threshold	£89 per week
Secondary threshold	£89 per week
Employees’ primary Class 1 rate	11% of £89.01 to £595 per week 1% above £595 per week
Employees’ contracted-out rebate	1.6%
Married women’s reduced rate	4.85% of £89.01 to £595 per week 1% above £595 per week
Employers’ secondary Class 1 rate	12.8% above £89 per week
Employers’ contracted-out rebate, salary-related schemes	3.5%
Employers’ contracted-out rebate, money-purchase schemes	1.0%
Class 2 rate	£2.00 per week
Class 2 small earnings exception	£4,095 per year
Special Class 2 rate for share fishermen	£2.65 per week
Special Class 2 rate for volunteer development workers	£3.85 per week
Class 3 rate	£6.95 per week
Class 4 lower profits limit	£4,615 per year
Class 4 upper profits limit	£30,940 per year
Class 4 rate	8% of £4,615 to £30,940 per year 1% above £30,940 per year

Pre-Budget Report 2002 Press Notice index