PN 02
5 December 2005
2005 Pre-Budget Report
Income tax allowances, national insurance contributions, child and working tax credit rates 2006-07 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 2006-07
£ per year (unless stated) |
2005-06 |
Change |
2006-07 |
| Working Tax Credit | |||
| Basic element |
£1,620
|
+£45
|
£1,665
|
| Couple and lone parent element |
£1,595
|
+£45
|
£1,640
|
| 30 hour element |
£660
|
+£20
|
£680
|
| Disabled worker element |
£2,165
|
+£60
|
£2,225
|
| Severe disability element |
£920
|
+£25
|
£945
|
| 50+ Return to work payment (16-29 hours) |
£1,110
|
+£30
|
£1,140
|
| 50+ Return to work payment (30+ hours) |
£1,660
|
+£45
|
£1,705
|
| Childcare element of the Working Tax Credit | |||
| Maximum eligible cost for one child |
£175 per week
|
-
|
£175 per week
|
| Maximum eligible cost for two or more children |
£300 per week
|
-
|
£300 per week
|
| Percentage of eligible costs covered |
70%
|
+10%
|
80%
|
| Child Tax Credit | |||
| Family element |
£545
|
-
|
£545
|
| Family element, baby addition |
£545
|
-
|
£545
|
| Child element |
£1,690
|
+£75
|
£1,765
|
| Disabled child element |
£2,285
|
+£65
|
£2,350
|
| Severely disabled child element |
£920
|
+£25
|
£945
|
| Income thresholds and withdrawal rates | |||
| First income threshold |
£5,220
|
-
|
£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 |
£13,910
|
+£245
|
£14,155
|
| Income disregard |
£2,500
|
+£22,500
|
£25,000
|
Child Benefit/Guardian’s Allowance rates 2006-07
£ per week |
2005-06 |
Change |
2006-07 |
| Eldest/only child |
£17.00
|
+£0.45
|
£17.45
|
| Other children |
£11.40
|
+£0.30
|
£11.70
|
| Eldest/only Child (Lone Parent Rate) |
£17.55
|
-
|
£17.55
|
| Guardian’s Allowance |
£12.20
|
+£0.30
|
£12.50
|
Income Tax Personal and Age-related Allowances 2006-07
£ per year (unless stated) |
2005-06 |
Change |
2006-07 |
| Personal allowance (age under 65) |
£4,895
|
+£140
|
£5,035
|
| Personal allowance (age 65-74) |
£7,090
|
+£190
|
£7,280
|
| Personal allowance (age 75 and over) |
£7,220
|
+£200
|
£7,420
|
| Blind Person’s Allowance |
£1,610
|
+£50
|
£1,660
|
| Married couple's allowance* (aged less than 75 and born before 6th April 1935) |
£5,905
|
+£160
|
£6,065
|
| Married couple's allowance* (age 75 and over) |
£5,975
|
+£160
|
£6,135
|
| Married couple's allowance* - minimum amount |
£2,280
|
+£70
|
£2,350
|
| Income limit for age-related allowances |
£19,500
|
+£600
|
£20,100
|
* Tax relief for the married couple's allowance is given at the rate of 10 per cent.
National Insurance Contributions 2006-07
£ per week (unless stated) |
2005-06 |
Change |
2006-07 |
| Lower earnings limit, primary Class 1 |
£82
|
+£2
|
£84
|
| Upper earnings limit, primary Class 1 |
£630
|
+£15
|
£645
|
| Primary threshold |
£94
|
+£3
|
£97
|
| Secondary threshold |
£94
|
+£3
|
£97
|
| 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, money-purchase schemes |
1%
|
-
|
1%
|
| Class 2 rate |
£2.10
|
-
|
£2.10
|
| Class 2 small earnings exception |
£4,345 per year
|
+£120 per year
|
£4,465 per year
|
| Special Class 2 rate for share fishermen |
£2.75
|
-
|
£2.75
|
| Special Class 2 rate for volunteer development workers |
£4.10
|
+£0.10
|
£4.20
|
| Class 3 rate |
£7.35
|
+£0.20
|
£7.55
|
| Class 4 lower profits limit |
£4,895 per year
|
+£140 per year
|
£5,035 per year
|
| Class 4 upper profits limit |
£32,760 per year
|
+£780 per year
|
£33,540 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 |
27.1p
|
-
|
27.1p
|
| Liquefied petroleum gas used as road fuel |
9p per kg
(equivalent 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) |
5.22p
|
+1.22p
|
6.44p
|
| Fuel Oil |
4.82p
|
+1.22p
|
6.04p
|
Fuel duty
The Pre-Budget Report announces the continuation of the freeze in main fuel duty rates and the duty rates for road fuel gases, due to continued oil market volatility.
To help reduce incentives for oils fraud, the Government today announces that the duty on rebated gas oil will increase by 1.22 pence per litre. Duty on heavy fuel oil will also increase by 1.22 pence per litre, to reflect the polluting nature of the fuel. The increases takes effect from midnight on 5 December.
Child and Working Tax Credit rates and Child Benefit
Child Benefit is raised in line with inflation, except for the lone parent element, which remains frozen.
The child element of Child Tax Credit (CTC) increases in line with average earnings. The disabled child element and severely disabled elements rise with inflation. The family element (normal and baby addition) remains frozen at £545 per year. The income threshold for CTC only rises to £14,155 per year. The income threshold for CTC family element only remains at £50,000 per year.
The maximum eligible childcare costs remains at £175 for one child and £300 for two or more children. The percentage of eligible childcare costs increases from 70 per cent to 80 per cent.
The disregard in Tax Credits for increases in income between one tax year and the next rises from £2,500 to £25,000 from April 2006.
Income tax rates and allowances
All income tax allowances will automatically be increased in line with inflation. The personal allowance will increase to £5,035.
The age-related personal allowances will rise to £7,280 for people aged between 65 and 74 and to £7,420 for those aged 75 and over. This will mean that in 2006-07 no one aged 65 or over need pay tax on a income of up to £140 a week. Around half of all pensioners pay no tax on their income.
National insurance contributions
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.
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 £84 a week. It is set at the level of the basic retirement pension for a single person from April 2006, 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 £97 a week, the same as the weekly amount of the income tax personal allowance. This means that employees and employers will pay no income tax or Class 1 contributions on earnings below this level.
The upper earnings limit for employee’s Class 1 contributions will be raised to £645 a week, in line with inflation.
The standard main rate of employee’s Class 1 contributions below the upper earnings limit will continue to be 11 per cent, and above the limit the rate 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 flat rate of Class 2 contributions will be frozen at the 2005-06 level of £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 £4,465.
The annual lower profits limit for Class 4 contributions will increase in line with inflation to £5,035.
The upper profits limit for Class 4 contributions will be raised to £33,540 in line with inflation, to maintain the link with employees’ earnings liable to Class 1 contributions at the main rate.
The self-employed will pay Class 4 contributions on all their profits above the lower profits limit. 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.
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 frozen at the 2005 level of £2.75 a 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 10 pence to £4.20 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 £7.55 a week.
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 2006-07 is based on changes to the Retail Prices Index in the year to September 2005 (2.7 per cent). A statutory instrument – the Income Tax (Indexation) (No. 2) Order 2005 – has been laid today, confirming the effect of indexation on the personal allowances, blind person’s allowance, the age-related allowances, the married couples’ allowances and the income limit for age related allowances for 2005-06.