In the last few years the personal allowance has increased above the rate of inflation to the rate of £10,000 a year. This has taken a large number of, in particular, low earners out of the taxpaying system. However, it has now been mooted that the personal allowance should be increased again up to £12,500 per annum.

There are obviously plus points to increasing the personal allowance to this level and more people will end up not paying any tax at all. But there are also a few disadvantages:

Charity donations: at present, any donations that are made to charity can also claim a tax rebate if the person making the donation claims gift aid. However, they can’t do this if they don’t pay the equivalent amount of tax.

Pensions: When the government brought in auto-enrollment to company pension schemes, individuals were enrolled if they more than the personal allowance, therefore if the personal allowance is increased then less people will be enrolled automatically in company pensions. This is bad news as low earners are less likely to enroll by themselves.

However, obviously in these hard times any increase in take home earnings is welcome, particularly for low earners and so most people welcome the increase in the personal allowance.