Pre-Budget Report: Tax rises for millions

In addition, the Government is freezing everyone's tax-free personal allowance next year and will also freeze the threshold at which higher rate tax becomes due in 2012, which will lead to tax rises.

The Government announced in the 2008 Pre-Budget Report that NI would rise by half a percentage point from April 2011 for most and today it said it will increase it by a further half a point then for anyone who earns over £20,000.

This means most with income over that sum will pay 12% NI (on top of tax) on earnings up to the higher threshold (currently £43,888 a year) and 2% on earnings over that amount.

Anyone earning £30,000 a year is likely to pay around £250 more in NI from April 2011.

Chancellor Alistair Darling also said the threshold at which NI becomes payable will be raised by a further £11 a week from April 2011, on top of the previous increases announced, meaning someone on £10,000 a year will be £110 a year better off.

Thresholds frozen

Every taxpayer's personal allowance will remain the same in the 2010/11 tax year (currently £6,475 for most). It usually rises every year in line with earnings.

The upshot is that anyone who receives a pay rise will pay more tax, whereas those who have received rises over previous years may not necessarily paid more due to the increase in their personal allowance.

The unlucky ones may also be pushed into a higher tax band.

Higher rate blow

Meanwhile, even more people will pay higher rate tax in 2012/13 because the earning limit above which you pay 40% rather than 20% duty will be frozen then. This limit usually rises every year in line with earnings.

See the Pre-Budget Report round-up MSE News story for more info...

Further reading/Key links

Tax rates: 2009/10 Tax RatesProtect your pocket: Budget Planning