What is the Starting Rate of Income Tax?
The starting rate of income tax was an initial band of income tax introduced in the United Kingdom to apply to the first portion of taxable income, characterized by a lower rate of tax than the basic rate of income tax. This rate existed to help ease the tax burden on individuals with lower incomes. It was set at 10% when it replaced the former lower rate in 1999. However, this starting rate was abolished starting from April 2008.
Terminology and Key Facts:
- Starting Rate: The introductory level of tax used to apply to the initial part of taxable income, lower than the basic rate.
- Basic Rate of Income Tax: A standard rate applied to income within a specific band above the starting rate threshold.
- Lower Rate: The tax rate that was in place before the starting rate was introduced.
- Abolishment: This rate was removed from the tax system in April 2008.
Examples:
-
1999 Taxpayer Example:
- Income: £8,000
- Starting Rate (10%): First £1,500 taxed.
- Basic Rate (20% at the Time): Remaining £6,500 taxed.
-
Pre-2008 Tax Year:
- Income: £10,000
- Starting Rate (10%): Applies to first £2,230.
- Basic Rate (22% at the Time): Applies to remaining income.
Frequently Asked Questions:
1. When was the starting rate of income tax introduced?
The starting rate of income tax was introduced in 1999 to replace the lower rate of income tax.
2. What was the starting rate when introduced?
The starting rate was set at 10%.
3. Why was the starting rate of income tax abolished?
The government decided to simplify the tax system and reallocate tax reliefs and allowances in different ways to support taxpayers.
4. How were taxpayers impacted by the removal of the starting rate?
The removal of the starting rate meant that more income fell under the basic rate, potentially increasing the tax burden for lower-income earners initially.
5. What rate replaced the starting rate?
There was no specific replacement, but adjustments to personal allowances and thresholds for other income bands were made.
6. What tax rate applies to basic income brackets now?
Currently, in the UK, the basic rate of income tax is 20%.
7. Were any exemptions granted during the transition?
The government introduced specific measures and adjustments to personal allowances to offset impacts during the transitional period.
8. How does one calculate tax without the starting rate today?
Tax is calculated based on the current scales for personal allowances, basic rate, higher rate, and additional rates.
9. Do any tax systems still use a starting rate like the one previously in the UK?
Many tax systems globally adopt progressive tax rates, though the specific configurations and nomenclatures may vary.
10. Where can one find more information on current UK tax bands?
The HM Revenue and Customs (HMRC) website provides up-to-date information on tax bands and rates.
Related Terms:
- Basic Rate of Income Tax: The primary rate applied to income above the personal allowance but below the higher rate threshold.
- Higher Rate of Income Tax: A higher rate applied to income above the basic rate band threshold.
- Additional Rate of Income Tax: Applied to the highest income levels above the higher rate threshold.
- Personal Allowance: The amount of income exempt from income tax in a given tax year.
References for Further Reading:
Suggested Books for Further Studies:
- “Taxation: Finance Act 2022” by Melville A.
- “UK Tax System: Root and Branch Reform” by Malcolm Gammie.
- “Tolley’s Tax Guide 2022-23” by Arnold Homer and Rita Burrows.
Accounting Basics: “Starting Rate of Income Tax” Fundamentals Quiz
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