Cookies are small text files that are stored on your computer when you visit a website. They are mainly used as a way of improving the website functionalities or to provide more advanced statistical data.
Impact of Revised 2008/09 Tax Allowance
Newsletter issue - June 08.
Although the changes in income tax rates (abolishing the 10% rate and reducing the basic rate from 22% to 20%) were announced in March 2007, most people took very little notice at that time. When the new rates took effect in April 2008 there was an almighty fuss. Due to the loss of the 10% band those on lower wages began to pay more tax, and as the basic rate had been cut to 20% those with taxable incomes between about £18,000 and £35,000 had lower tax deductions.
After much dithering the Chancellor proposed a crude solution, which will not fully reimburse those on the lowest incomes who have lost out. The personal allowance for 2008/09 has been increased by £600 to £6,035 and the higher rate tax threshold has been reduced by £1,200. These changes are effective for the current tax year that started on 6 April 2008, and should result in a tax reduction of about £120 for basic rate taxpayers for 2008/09.
There are 4 main effects to consider...
1. If you run a payroll you are not expected to implement these changes until at least September 2008. HMRC have said they will issue instructions in the next few weeks on how the higher allowance and lower 40% threshold should be handled for PAYE purposes. The most straightforward solution would be to reissue all 22 million PAYE code numbers for 2008/09, but that would be very expensive for HMRC. We will let you know as soon as HMRC have decided what to do.
2. If you are self-employed you will not feel the full effect of the tax reduction until 31 January 2010, when you pay your final tax bill for 2008/09. You may be able to reduce your tax instalment payments due on 31 July 2008 and 31 January 2009, but that will be risky unless you know the level of profits that will be taxed for that year. We will only be able to work this out accurately once your accounting year finishes and your accounts are finalised.
3. As a shareholder/ director you may be used to drawing a salary exactly equal to your personal allowance, which is now £503 per month. However, if you increase your current salary above £453 per month you will pay more NICs as the earnings threshold, where NICs become payable at 11%, has not moved up with the personal allowance.
4. If your total income exceeds £41,435, you will see no difference in the tax you pay in 2008/09, but if you try to keep your income within the basic rate band you need to revise your calculations. As the higher rate tax threshold is now £34,800 not £36,000, you will need to restrict your dividend income to stay within that lower limit. Alternatively you could increase the pension contributions you pay by £480 (net).
What our clients say about us...
"Paul has provided accountancy services to my company for 2 years now. I can recommend Paul very highly; his skills as an accountant are highly detailed and professional and he is always available to provide advice. One aspect of the way Paul works that I greatly appreciate is a preference to meet face to face when there is a detailed conversation to be had. I personally find this more productive and is a benefit of working with a small accountancy firm that you wouldn't get with the large faceless providers."
ALISTAIR FAIRWEATHER - PROGRAMME & PROJECT MANAGER, DELIVERING/RESCUING I.T. 7 BUSINESS CHANGE WITH BUDGETS UPTO £50M INC SUPPIER MANAGEMENT
"I couldn't ask for more from Paul as an Accountant. Paul has been accountant to Work Relief Charity Recruitment for just over a year now and is proving an invaluable asset. Accurate, knowledgeable, flexible with an emphasis on service delivery, I would recommend Paul's services to any organisation looking for an accounts professional."
Neil Price - Managing Director at Work Relief Charity Recruitment
"Paul was a referral from a family member when I started my business 2 years ago. As this was the first time I had ever run my own company I was totally clueless over the financial side of matters and was worried that I may have made mistakes in any of my accounting. I needn't have worried as after enaging Paul for a set monthly fee he was always there on the end of the phone for all sorts of questions I had and no matter how trivial they were Paul gave me all the information I required and more and did an excellent and painless job at the end of my first year! Couldn't ask for any better to be honest. Just two words - hire him!!!"
Lee Westrap MBCS - Director - Bulldog IT Services
Please complete our form
to request a callback
Competitive fixed quotes
for agreed services
Increase your profit and
reduce tax liabilities
Expert advice for your
business size
