2004 Pre-Budget Report Press Notice 2
2 December 2004
INCOME TAX ALLOWANCES, NATIONAL INSURANCE CONTRIBUTIONS, CHILD AND WORKING TAX CREDIT RATES 2005-06 AND FUEL DUTIES
Rates and allowances for the Working and Child Tax Credits, Child Benefit/Guardian’s Allowance, Income Tax, National Insurance Contributions and fuel duties are set out below.
Working and Child Tax Credits rates 2005-06
| £ per year (unless stated) | 2004-05 | Change | 2005-06 |
| Working Tax Credit | |||
| Basic element | £1,570 | +£50 | £1,620 |
| Couple and lone parent element | £1,545 | +£50 | £1,595 |
| 30 hour element | £640 | +£20 | £660 |
| Disabled worker element | £2,100 | +£65 | £2,165 |
| Severe disability element | £890 | +£30 | £920 |
| 50+ Return to work payment (16-29 hours) | £1,075 | +£35 | £1,110 |
| 50+ Return to work payment (30+ hours) | £1,610 | +£50 | £1,660 |
| Childcare element of the Working Tax Credit | |||
| Maximum eligible cost for one child | £135 per week | +£40 per week | £175 per week |
| Maximum eligible cost for two or more children | £200 per week | +£100 per week | £300 per week |
| Percentage of eligible costs covered | 70% | - | 70% |
| Child Tax Credit | |||
| Family element | £545 | - | £545 |
| Family element, baby addition | £545 | - | £545 |
| Child element | £1,625 | +£65 | £1,690 |
| Disabled child element | £2,215 | +£70 | £2,285 |
| Severely disabled child element | £890 | +£30 | £920 |
| Income thresholds and withdrawal rates | |||
| First income threshold | £5,060 | +£160 | £5,220 |
| First withdrawal rate (per cent) | 37% | - | 37% |
| Second income threshold | £50,000 | - | £50,000 |
| Second withdrawal rate (per cent) | 6.67% | - | 6.67% |
| First threshold for those entitled to Child Tax Credit only | £13,480 | +£430 | £13,910 |
| Income disregard | £2,500 | - | £2,500 |
Child Benefit/Guardian’s Allowance rates 2005-06
| £ per week | 2004-05 | Change | 2005-06 |
| Eldest/only child | £16.50 | +£0.50 | £17.00 |
| Other children | £11.05 | +£0.35 | £11.40 |
| Eldest/only Child (Lone Parent Rate) | £17.55 | - | £17.55 |
| Guardian’s Allowance | £11.85 | +£0.35 | £12.20 |
Income Tax Personal and Age-related Allowances 2005-06
| £ per year (unless stated) | 2004-05 | Change | 2005-06 |
| Personal allowance (age under 65) | £4,745 | +£150 | £4,895 |
| Personal allowance (age 65-74) | £6,830 | +£260 | £7,090 |
| Personal allowance (age 75 and over) | £6,950 | +£270 | £7,220 |
| Blind Person’s Allowance | £1,560 | +£50 | £1,610 |
| Married couple's allowance* (aged less than 75 and born before 6th April 1935) | £5,725 | +£180 | £5,905 |
| Married couple's allowance* (age 75 and over) | £5,795 | +£180 | £5,975 |
| Married couple's allowance* - minimum amount | £2,210 | +£70 | £2,280 |
| Income limit for age-related allowances | £18,900 | +£600 | £19,500 |
| Pension schemes earnings cap | |||
| Pension schemes earnings cap (1989 cap) | £102,000 | +£3,600 | £105,600 |
| Occupational Pension Schemes final remuneration cap (1987 cap) | £100,000 | +£5,600 | £105,600 |
| Occupational Pension Schemes tax free lump sum (1987 cap) | £150,000 | +£8,400 | £158,400 |
* Married couple's allowance is given at the rate of 10 per cent.
National Insurance Contributions 2005-06
| £ per week (unless stated) | 2004-05 | Change | 2005-06 |
| Lower earnings limit, primary Class 1 | £79 | +£3 | £82 |
| Upper earnings limit, primary Class 1 | £610 | +£20 | £630 |
| Primary threshold | £91 | +£3 | £94 |
| Secondary threshold | £91 | +£3 | £94 |
| Employees’ primary Class 1 rate between primary threshold and upper earnings limit | 11% | - | 11% |
| Employees’ primary Class 1 rate above upper earnings limit | 1% | - | 1% |
| Employees’ contracted-out rebate | 1.6% | - | 1.6% |
| Married women’s reduced rate between primary threshold and upper earnings limit | 4.85% | - | 4.85% |
| Married women’s rate above upper earnings limit | 1% | - | 1% |
| Employers’ secondary Class 1 rate above secondary threshold | 12.8% | - | 12.8% |
| Employers’ contracted-out rebate, salary-related schemes | 3.5% | - | 3.5% |
| Employers’ contracted-out rebate, moneypurchase schemes | 1% | - | 1% |
| Class 2 rate | £2.05 | +£0.05 | £2.10 |
| Class 2 small earnings exception | £4,215 per year | +£130 per year | £4,345 per year |
| Special Class 2 rate for share fishermen | £2.70 | +£0.05 | £2.75 |
| Special Class 2 rate for volunteer development workers | £3.95 | +£0.15 | £4.10 |
| Class 3 rate | £7.15 | +£0.20 | £7.35 |
| Class 4 lower profits limit | £4,745 per year | +£150 per year | £4,895 per year |
| Class 4 upper profits limit | £31,720 per year | +£1,040 per year | £32,760 per year |
| Class 4 rate between lower profits limit and upper profits limit | 8% | - | 8% |
| Class 4 rate above upper profits limit | 1% | - | 1% |
Fuel duties
| Pence per litre (unless stated) | Old duty rate | Change | New duty rate |
| Ultra-low sulphur petrol/diesel | 47.1p | - | 47.1p |
| Sulphur-free petrol/diesel | 47.1p | - | 47.1p |
| Biodiesel | 27.1p | - | 27.1p |
| Bioethanol | 47.1p | -20p | 27.1p from 1 January 2005 |
| Liquefied petroleum gas used as road fuel | 9p per kg (equivalent to 5.4p per litre) | - | 9p per kg |
| Natural gas used as road fuel | 9p per kg (equivalent to 6.1p per litre) | - | 9p per kg |
| Rebated gas oil (red diesel) | 4.22p | +1p | 5.22p from 3 December 2004 |
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DETAILS
Child and Working Tax Credit rates and Child Benefit
Paymaster General, Dawn Primarolo today set out the Child and Working Tax Credit rates for 2005-06.
In line with the Government’s previous undertaking to uprate the child element of Child Tax Credit by earnings for the rest of this Parliament, it will increase by £65 from April 2005. In addition, the disabled child elements of Child Tax Credit for 2005-06 will be uprated with inflation. In line with the Government’s commitment, the elements of the Working Tax Credit for 2005-06 will rise in line with inflation. The first income threshold for tax credits will also rise with inflation.
The limits on eligible childcare costs in Working Tax Credit will rise to £175 per week for one child and £300 per week for two or more children from April 2005; the maximum share of eligible costs covered will be 70 per cent in 2005-06, rising to 80 per cent in 2006-07.
The rates of Child Benefit and Guardian’s Allowance for 2005-06 will rise in line with inflation.
Draft statutory instruments, accompanied by the report required under Section 41 of the Tax Credits Act 2002 will be laid before Parliament in due course.
Income tax rates and allowances
The personal allowance for those aged 65 and over will increase in line with earnings from April 2005 to £7,090 for those aged 65-74, and for those aged 75 or over to £7,220. This means that no one 65 or over will pay tax unless their income reaches £136 per week. Other allowances, including the personal allowance for those under 65, will be increased in line with inflation.
Pension schemes earnings cap
The main effect of the pension schemes earnings cap is to set a ceiling on the contributions that can be paid to, and the benefits that can be paid by, tax approved pension schemes. It generally applies to people who contribute to a personal pension scheme, joined an occupational scheme set up since 14 March 1989, or joined any occupational scheme from 1 June 1989 that was set up before 14 March 1989. From 6 April 2001 the cap applied to people who contribute to stakeholder pension schemes. For 2005-06 the cap is increased to £105,600. In addition, the cap introduced in 1987 on the final remuneration for calculating pension benefits from Occupational Pension Schemes will be aligned with the earnings cap. This will have the effect of taking the cap on tax-free lump sums to £158,400, which is 1.5 times the pension schemes earnings cap.
Civil Partnership Act
The tax consequences of the Civil Partnership Act will be dealt with in the first available Finance Bill. For tax purposes, registered same-sex couples will be treated the same as married couples.
NATIONAL INSURANCE CONTRIBUTIONS
Employers’ and employees’ contributions
In line with the Social Security Contributions and Benefits Act 1992, the lower earnings limit for employees’ Class 1 contributions is to be raised to £82 a week. It is set at the level of the basic retirement pension for a single person from April 2005, rounded down to the nearest pound. This is the lowest level of earnings that can count towards entitlement to contributory benefits.
The primary and secondary thresholds for Class 1 contributions will increase in line with inflation to £94 a week, the same as the weekly amount of the income tax personal allowance. This means that employees and employers will pay no tax or Class 1 contributions on earnings below this level.
The upper earnings limit for employees’ Class 1 contributions will be raised to £630 a week, in line with inflation.
The standard main rate of employees’ Class 1 contributions below the upper earnings limit will continue to be 11 per cent, and above the limit will continue to be 1 per cent.
The standard rate of employers’ Class 1 contributions will continue to be 12.8 per cent.
The self-employed
The rate of Class 2 contributions will increase in line with inflation to £2.10 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 £4,345.
The annual lower profits limit for Class 4 contributions will increase in line with inflation to £4,895. The self-employed will pay Class 4 contributions on all their profits above the lower profits limit of £4,895. 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. The upper profits limit for Class 4 contributions at the main rate of 8 per cent will be raised to £32,760 in line with inflation, to maintain the link with employees’ earnings liable to Class 1 contributions at the main rate.
Share fishermen
The special rate of Class 2 contributions for share fisherman, 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 increased in line with inflation to £2.75 per week.
Volunteer development workers
The special rate of Class 2 contributions for volunteer development workers, that entitles them to the full range of contributory benefits, will be increased by 15 pence to £4.10 in line with the statutory formula of 5 per cent of the primary Class 1 lower earnings limit.
Paying voluntary contributions
The rate of Class 3 voluntary contributions will be increased by 20 pence to £7.35 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.
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NOTES FOR EDITORS
Section 41 of the Tax Credits Act requires a report to be laid before Parliament each year reviewing the amounts of certain tax credit elements and thresholds. Section 145 of the Social Security Contributions and Benefits Act 1992 requires an annual review of Child Benefit rates. Section 150 of the Social Security Administration Act 1992 requires the weekly rate of Guardian’s Allowance to be increased in line with prices.
Income tax allowances are uprated each year by indexation unless legislation is passed to override its effects. Statutory indexation for 2005-06 is based on changes to the Retail Prices Index in the year to September 2004 (3.1 per cent). A statutory instrument – the Income Tax (Indexation) (No. 2) Order 2004 - has been laid today, confirming the effect of indexation on the personal allowances, blind person’s allowance, the married couples’ allowances and the income limit for age related allowances for 2005-06. A measure will be included in the Finance Bill to increase the personal allowances for the over 65s by earnings.
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