Changes To UK Tax Personal Allowances Could Confuse

by Amanda Banks, for LawAndTax-News.com, London

01 August 2008

A change in UK taxpayers' personal allowances will come into force in September of this year, but the Association of Chartered Certified Accountants (ACCA) is warning that it could cause confusion for them and for businesses that need to change tax allowances.

Chas Roy Chowdhury, head of taxation at ACCA, explains:

“The personal allowance is the amount of money someone earns before they have to start paying tax – the basic allowance for 2008/09 tax year is GBP5,435. However, there will be a change in September 2008 when the allowance will be back dated to April 2008 to GBP6,035. This is called the Extra Personal Allowance and was announced by the Chancellor earlier this year following criticism about removing the 10p rate of tax.”

Mr Roy-Chowdhury went on to add that the arrangements are confusing, but are good news for basic rate tax payers:

“The arrangements mean that pay packets will look different in September. HM Revenue & Customs website has a page devoted to the changes, which ACCA urges people and businesses to view. And the changes will only benefit basic rate tax payers, not those paying 40%.”

The changes mean that:

1. From the first pay day on or after 7 September 2008, there will be a tax saving of approximately GBP120 over the course of the tax year.
2. This means for those whose pay day in September is on or after 7 September, they will pay up to GBP60 less tax that month.
3. For those who are paid monthly and their pay day is before 7 September, they will pay up to GBP70 less tax in October. To add to the potential confusion, any tax reduction will depend on how much people have already paid. In some cases, people may even get a repayment included in their pay.
4. From September onwards, people who are paid monthly will pay the taxman up to GBP10 a month less tax; if they are paid weekly, they will hand over to the taxman up to GBP2.30 less tax.
5. The basic rate tax band will reduce from GBP36,000 to GBP34,800. Anything above that amount will then fall into the 40% tax band.

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