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Tax threshold rises to £7,475

More than 600,000 people in Northern Ireland will benefit from an increase to the personal allowance threshold.

Chancellor George Osborne announced in yesterday's Budget that the level at which income tax kicks in will rise by £1,000 to £7,475 from April next year.

The move will save basic rate taxpayers £170 a year. However, higher rate taxpayers will not benefit from the decision and the threshold at which the 40% rate of income tax starts will be frozen until 2013/14.

The increase in the personal allowance is the first step towards fulfiling a coalition pledge to raise the threshold at which income tax starts to £10,000 over the longer term.

It also aims to offset the impact of a 1% rise in National Insurance contributions from April next year for lower earners.

Around 15,000 businesses in Northern Ireland are also set to benefit from the Chancellor's announcement that over the next three years, there will be up to £5,000 exemption from Employer's NIC for each of the first 10 people employed by new businesses.

His decision to also reverse the employer NICs rate rise announced by Labour in the last Budget will also save local companies around £80m a year.

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Peter Burnside, tax partner, BDO Northern Ireland said: "All businesses will welcome these changes, particularly small businesses in UK regions with lower levels of private sector activity.

"Small businesses tend to lead the recovery in employment levels after a recession and these announced changes should alleviate the significant tax disincentive that is employers' National Insurance. These two measures are a significant tax give away by the Chancellor."

The personal allowance move will benefit 23 million basic rate taxpayers in the UK and cost the Government £3.49bn next year, rising to £3.9bn by 2014/15.

The Low Incomes Tax Reform Group welcomed the increase to the personal allowance, but warned people receiving means-tested benefits would not see the full benefit of the change.

Robin Williamson, the group's technical director, said: "The reason is that entitlement to means-tested benefits is based on after-tax income.

"Therefore, reducing a claimant's tax bill will also decrease their benefits entitlement, affecting their overall cash position.

"For some benefits claimants, such as housing benefit or council tax benefit, the £200 saving can be reduced down to less than a £1 a week."

The impact of all measures including indirect tax (such as VAT), direct tax (eg income tax) and benefits/tax credits in cash terms will hit every pocket in Northern Ireland, according to Treasury figures.

Those earning just £14,200 a year or less will be more than £200 worse off a year while those with a salary of £32,200 will see their net income spiral by £500 and top earners on over £49,700 will be almost £1,600 less well off.