| When the changes in income tax rates were | | | | your accounting year to end and your accounts |
| announced in March 2007, most people took little | | | | finalised. |
| notice. The 10% rate was abolished and the basic | | | | 2. If you are shareholder/ director. By drawing a |
| rate reduced from 22% to 20%. There was a | | | | salary exactly equal to your personal allowance, |
| huge reaction when the new rates took effect in | | | | which is now £503 per month, you will |
| April 2008. The loss of the 10% band meant | | | | become liable to pay more NICs. By increasing |
| those on lower wages began to pay more tax. | | | | your current salary above £453 per month |
| Those with taxable incomes between about | | | | you will pay more NICs as the earnings threshold, |
| £18,000 and £35,000 had lower tax | | | | where NICs become payable at 11%, has not |
| deductions as the basic rate had been cut to 20% | | | | risen with the personal allowance. |
| (abolishing the 10% rate and reducing the basic | | | | 3. If your total income exceeds £41,435. |
| rate | | | | You will see no change in the tax you pay in 2008 |
| The Chancellor after much dithering proposed a | | | | 09, but if you try to keep your income within the |
| crude solution. It will not fully reimburse those on | | | | basic rate band you need to review your |
| the lowest incomes who have lost out. The | | | | calculations. The higher rate tax threshold is now |
| personal allowance for 2008/09 has been | | | | £34,800 not £36,000, so you will |
| increased by £600 to £6,035 and | | | | need to restrict your dividend income to stay |
| the higher rate tax threshold has been reduced | | | | within that lower limit. Another alternative is to |
| by £1,200. These changes should result in a | | | | increase your pension contributions by |
| tax reduction of about £120 for basic rate | | | | £480 (net). |
| taxpayers for 2008/09 and are effective for the | | | | 4. If you run a payroll HMRC have said they will |
| current tax year that started on 6 April 2008. | | | | issue instructions in the next few weeks. These |
| The 4 main effects to consider are... | | | | will explain how the higher allowance and lower |
| 1. If you are self-employed. The full effect of the | | | | 40% threshold should be introduced. You are not |
| tax reduction will not be apparent to you until you | | | | expected to implement these changes until at |
| pay your final tax bill for 2008/09 by 31 January | | | | least September 2008. The most straightforward |
| 2010. It may be possible to reduce your tax | | | | sway would be to reissue PAYE code numbers |
| instalment payments due on 31 July 2008 and 31 | | | | for 2008/09 for all 22 million, Doing this would be |
| January 2009.Doing this may be risky unless you | | | | very expensive for HMRC. Our newsletter will let |
| know the level of profits that will be taxed for | | | | you know what to do as soon as HMRC have |
| that year. To work this out accurately you need | | | | decided. |