PN 2 - Income Tax Allowances, National Insurance Contributions, and Child and Working Tax Credit Rates 2004-05
An increase of £180 per year in the child element of Child Tax Credit, to £1625 per child per year, equivalent to a weekly increase of £3.50, was announced by the Chancellor today.As a result of this new investment, the Government is on track to meet or exceed its PSA target to reduce by a quarter the number of children in low-income households by 2004-05 on a Before Housing Costs basis.
3.7 million families and 7.2 million children will benefit from the increase in the child element of Child Tax Credit, approximately half of all families and children in the UK.
The Chancellor also announced that for pensioners, the personal allowance for those aged 65 or more will increase in line with earnings in April 2004:
- the personal allowance for people aged 65-74 for 2004-05 will increase in line with earnings to £6,830 - an increase of £220; and
- the personal allowance for people aged 75 or over for 2004-05 will increase in line with earnings to £6,950 - an increase of £230.
These changes ensure that no pensioner aged 65 or more will pay tax on income up to £131 per week.
The basic personal allowance for people aged under 65 will be increased in line with inflation to £4,745 for 2004-05. All other personal tax allowances, including the income limit for age related allowances, will increase in line with inflation.
The starting point for employers', employees' and self-employed National Insurance Contributions (NICs) in 2004-05 will increase in line with inflation to £91 per week. NICs are not paid on earnings or profits below this amount.
The upper earnings and profits limits for NICs will increase from April 2004 in line with inflation from £595 to £610 a week (£31,720 a year).
For the self-employed the rate of Class 2 contributions will be increased in line with inflation to £2.05 a week.
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 2004-05.
The Government had previously undertaken to uprate the child element of Child Tax Credit by earnings for the rest of this Parliament, which would have required an increase of £50 a year from April 2004. Instead it will be increased by £180 per year to £1,625 per year. In addition, the disabled child elements of Child Tax Credit will be uprated in line with inflation for 2004-05.
In line with the Government's commitment, the elements of the Working Tax Credit will also rise in line with inflation for 2004-05.
The rates of Child Benefit and Guardian's Allowance will rise in line with inflation for 2004-05.
The annex sets out the amounts of the elements, rates and thresholds for tax credits in 2004/05 and the rates of Child Benefit and Guardian's Allowance.
Draft statutory instruments, accompanied by the reports required under Section 41 of the Tax Credits Act 2002 will be laid before Parliament in due course.
Employers and employees
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 £79 a week. It is set at the level of the basic retirement pension for a single person from April 2004, 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 £91 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 by employees or employers.
The upper earnings limit for employees' Class 1 contributions will be raised to £610 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 £2.05 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 £4,215.
The annual lower profits limit for Class 4 contributions will increase in line with inflation to £4,745. The self-employed will pay Class 4 contributions on all their profits above the lower profits limit of £4,745. 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 £31,720 (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 £2.70 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 10 pence to £3.95 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 £7.15 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 2004-05.
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 2004-05 is based on changes to the Retail Prices Index in the year to September 2003 (2.8 per cent). A statutory instrument - The Income Tax (Indexation) (No. 2) Order 2003 - 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 2004-05. A measure will be included in the Finance Bill to increase the personal allowances for the over 65s by earnings.
Working and Child Tax Credits rates 2004-05
| £ per year (unless stated) | 2003-04 | Change | 2004-05 |
|---|---|---|---|
| Basic element | 1,525 | (+45) | 1,570 |
| Couple and lone parent element | 1,500 | (+45) | 1,545 |
| 30 hour element | 620 | (+20) | 640 |
| Disabled worker element | 2,040 | (+60) | 2,100 |
| Severe disability element | 865 | (+25) | 890 |
| £ per year (unless stated) | 2003-04 | Change | 2004-05 |
|---|---|---|---|
| Maximum eligible cost for one child | 135 per week | (+0) | 135 per week |
| Maximum eligible cost for two or more children | 200 per week | (+0) | 200 per week |
| Per cent of eligible costs covered | 70 | (+0) | 70 |
| 50+ Return to work payment (16-29 hours) | 1,045 | (+30) | 1,075 |
| 50+ Return to work payment (30+ hours) | 1,565 | (+45) | 1,610 |
| £ per year (unless stated) | 2003-04 | Change | 2004-05 |
|---|---|---|---|
| Family element | 545 | (+0) | 545 |
| Family element, baby addition | 545 | (+0) | 545 |
| Child element | 1445 | (+180) | 1,625 |
| Disabled child element | 2155 | (+60) | 2,215 |
| Severely disabled child element | 865 | (+25) | 890 |
| £ per year (unless stated) | 2003-04 | Change | 2004-05 |
|---|---|---|---|
| First income threshold | 5,060 | (+0) | 5,060 |
| First withdrawal rate (per cent) | 37 | (+0) | 37 |
| Second income threshold | 50,000 | (+0) | 50,000 |
| Second withdrawal rate (per cent) | 6.67 | (+0) | 6.67 |
| First threshold for those entitled to Child Tax Credit only | 13,230 | (+250) | 13,480 |
| Income disregard | 2,500 | (+0) | 2,500 |
Child Benefit/Guardian's Allowance rates 2004-05
| £ per week | 2003-04 | Change | 2004-05 |
|---|---|---|---|
| Eldest/Only Child | 16.05 | (+0.45) | 16.50 |
| Other Children | 10.75 | (+0.30) | 11.05 |
| Eldest/Only Child (Lone Parent Rate) | 17.55 | (+0.00) | 17.55 |
| Guardian's Allowance | 11.55 | (+0.30) | 11.85 |
Income Tax Personal and Age-related Allowances 2004-05
| 2003-04 | Change | 2004-05 | |
|---|---|---|---|
| Personal allowance (age under 65) | £4,615 | (+130) | £4,745 |
| Personal allowance (age 65-74) | £6,610 | (+220) | £6,830 |
| Personal allowance (age 75 and over) | £6,720 | (+230) | £6,950 |
| Blind Person's Allowance | £1,510 | (+50) | £1,560 |
| Married couple's allowance (1) (aged less than 75 and born before 6th April 1935) | £5,565 | (+160) | £5,725 |
| Married couple's allowance (1) (age 75 and over) | £5,635 | (+160) | £5,795 |
| Married couple's allowance (1) - minimum amount | £2,150 | (+60) | £2,210 |
| Income limit for age-related allowances | £18,300 | (+600) | £18,900 |
(1) Married couple's allowance is given at the rate of 10 per cent
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