Income Tax Act 2007 section 21

Indexation of the basic rate limit and starting rate limit for savings

Section 21 provides for the automatic annual indexation of the basic rate limit and the starting rate limit for savings, based on increases in the consumer prices index.

• Where the consumer prices index for September is higher than the previous September, the basic rate limit and starting rate limit for savings must be increased by the same percentage for the following tax year
• The new basic rate limit is rounded up to the nearest £100 if necessary, while the starting rate limit for savings is rounded up to the nearest £10 if necessary
• Employers are given a transitional period from 6 April to 17 May before they need to reflect the updated limits in their PAYE deductions and repayments
• The Treasury must make a statutory order before the start of the tax year formally replacing the previous limits with the newly indexed amounts