As you probably already know by now, the Personal Allowance 2011 changed from 6th April 2011.
Previously, you could earn up to £6,475 completely tax-free. As of 6th April 2011, you can now earn up to £7,475 per tax year (this is your personal allowance).
If you are the director in a limited company, and pay yourself through PAYE, if you currently pay yourself the maximum you can without having to pay income tax on it, then the amount you can pay yourself tax-free is increasing from £475 per month up to £589 per month.
How The New Personal Allowance 2011 Affects You
To show you how this could affect you if you’re an employee, see the example below.
Mr A is an employee of Keepers. He earns £20,000 per year before tax. (Example does not include National Insurance Contributions)
Tax Year 2010 - 11
£20,000 - £6,475 = £13,525 @ 20% = £2,705 tax to be paid, leaving Mr A with £17,295 take-home pay in the year 2010/11.
Tax Year 2011 - 12
£20,000 - £7,475 = £12,525 @ 20% = £2,505 tax to be paid, leaving Mr A with £17,495 take-home pay for the year 2011/12. This means, that after the changes in his personal allowance, Mr A now sees £200 more money in this year.
If you have any questions or comments regarding Personal Allowance 2011, please leave a comment below, or you can use our Ask an Accountant service.