The standard income tax rate in the Republic and Britain will be the same at 22 per cent from April following changes announced in yesterday's British budget. But, aside from this similarity, the personal income tax system in the two states remains very different.
The Republic is in the process of moving toward a tax credit system. Under this system, taxpayers add up all their income and work out how much tax they owe at the applicable rate.
From April 6th, 2000, the first £17,000 of a single person's income will be taxed at 22 per cent with the balance subject to the higher tax rate of 44 per cent.
Thus, a single person on £20,000 will pay £5,060 in tax - £3,740 at the 22 per cent rate on the first £17,000 of their income and £1,320 on the balance of £3,000 at 44 per cent.
At that stage, the various credits - the personal allowance, the PAYE allowance and others such as VHI and mortgage relief - should be added up, allowed at the standard rate of 22 per cent and deducted from the tax due.
A single person with no mortgage, health insurance or pension will be entitled to a basic personal allowance of £4,700 from April and a PAYE allowance of £1,000, a total of £5,700. At the standard tax rate, this gives a credit of £1,254 which, deducted from the original tax liability of £5,060, gives a tax bill of £3,806, or 19 per cent of gross income.
On top of this is the 2 per cent health levy and PRSI - payable at 4.5 per cent from April for all bar civil servants on income up to income £26,500, less the first £100 per week.
By contrast, Britain still has an allowance system similar to the one that used to operate here. British workers will enjoy a personal tax-free allowance of £4,385 from April, up £50 after yesterday's budget. They will then pay tax at 10 per cent on the next £1,520 of their income, at 22 per cent on the following £26,880, and at 40 per cent on sums above this.
Thus, a British single worker earning £20,000 will face a tax bill of £3,252.90 from April, around 16 per cent of gross income. Again, this does not factor in social security payments or other levies and reliefs.
