New personal tax allowance comes into effect

A change to the tax system means that millions of people will be better off for the rest of the tax year.

The change, which takes effect this month, sees an increase in the basic personal income tax allowance, the threshold at which tax becomes payable, by £600 to £6,035.

The adjustment to the personal allowance was announced by the Chancellor in May in response to reactions to his decision to scrap the 10p tax band.

As a result, most people under 65 who pay tax at the basic rate will have £60 less deducted from their pay packets on or after 7 September, and £10 less deducted from their take-home pay each month after that until next April.

HM Revenue and Customs (HMRC) said that the precise amount of the increases will be determined by how much tax people have already paid in 2008/09.

The new allowance will affect people who are self-employed and who only pay tax through self assessment when their tax is calculated for 2008/09.

The increased allowance only goes to those who pay all their tax at basic rate.

HMRC said that around 40 million tax code numbers for those individuals under the age of 65 will change. The new tax codes must be applied by employers on the first pay day on or after 7 September 2008.