New band has minimal effect
Regular readers will remember the fiasco resulting from the Government's abolition of the 10% tax rate on the first part of people's incomes.
The measure was announced in Gordon Brown's last budget (March 2007) but it was down to his successor Alistair Darling to take the flak when the effect became apparent at the start of this tax year.
It amused me that it was almost a year after the announcement that most commentators noticed the effects.
I am proud of being one of the exceptions who noticed this at budget time.
The end result of the public outcry was that the Chancellor announced a change to tax which was intended to compensate those losing out by the abolition of a 10% tax band. The key effects of the change he announced were:
lPersonal tax allowances go up by £600 for 2008/09 — for everyone.
lThe level at which you pay 40% tax comes down by £1,200 for 2008/09.
This second measure means that 40% taxpayers do not gain overall from the change, the money being made available only to people who do not pay higher-rate tax.
For most taxpayers this measure saves them £120 — that is, it cancels out the extra £120 they would otherwise have paid under Gordon Brown's plan.
That extra £10 per month is currently being taken from pay-packets. It is only now the mechanics for giving it back are coming into play.
For self-employed people who pay their tax after sending in a Tax Return, their tax for 2008/09 will not be calculated until after April 5, 2009.
However, for people whose tax is deducted from their wages under Pay-As-You-Earn (PAYE), the change happens in September 2008.
Employers need to make the change at the end of September 2008 for monthly paid staff.
For staff paid weekly, the new tax codes etc are used on the first payday after September 6, 2008.
By the time employers are reading this article they should have received some information from the Revenue about preparing for the September changes.
The Revenue has also promised a revised Employer CD-ROM this month. This is needed by smaller employers who use the Revenue's own CD to work out the tax and National Insurance for workers.
The effect on employees will be modest. While the tax saving works out at £120 over a full year, the change in the pay packet will be smaller.
This is because the tax year is only half over. Net pay for the month of September might increase by £60 on previous months. Following this, a saving of about £10 per month can be expected (compared with, for example, July).
For employers the main effect is the hassle.
They must ensure they make the appropriate changes to the September payroll. To keep working out the same tax as they did in August, will simply mean a lot of unhappy staff.
Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co — www.hustontax.com or 028 9080 6080.