Tax Tips 4: Dealing with Changed Personal Allowances

The announcement by the Chancellor Alistair Darling about the changes to the personal allowance and the basic rate tax band for 2008/09 took HMRC by surprise as much as everyone else. It has taken a few months to work out how to tweak the PAYE system so everyone pays the right amount of tax in 2008/09.

HMRC have now decided not to reissue every single PAYE code. Instead employers will have to add 60 to every PAYE code that has an L suffix. This means code 543L will become 603L. For all other letter suffixes you must wait for a new PAYE code to be issued. L is the most frequently used suffix, so you as an employer are effectively doing HMRC's work, and picking up the costs incurred by the Chancellor's change of mind.

The new codes should be applied from the first payday on or after 7 Sep 2008. Monthly paid employees, who are on the basic rate of tax will receive a tax reduction through the payroll of around £60 over the remainder of the tax year. This will normally reduce the employee's total tax deductions for the month, but in rare cases it will create a refund for the employee of tax he has paid earlier in the tax year.

FreeAgent Notes

FreeAgent will support updating tax codes and recalculating payslips in release 'Anjou' on the 4th Sep 08. Once that's done, we'll explain how to update your payslips here on The Central.

Chris Thomas, One Accounting Ltd