Employers have been advised to prepare for the effects of the change in personal tax allowances following new guidance released by the Government.

HM Revenue and Customs (HMRC) has confirmed that changes to the income tax higher rate band and personal allowance will take effect from 7 September 2008 and should be backdated to 6 April.

The Chancellor announced the amended allowance in an emergency ‘mini Budget’ delivered in May. In an attempt to compensate those who lost out as a result of the abolition of the 10% starting rate of income tax, Alistair Darling raised the basic 2008/09 personal allowance from £5,435 to £6,035.

As a result, employers may need to issue staff with new PAYE codes in order to implement the change. HMRC is currently writing to businesses with further details on how to process the amendments.

The measures effectively mean that those earning up to £40,835 will receive an additional £120 this year. Eligible pay packets will be boosted by £60 in September, followed by £10 monthly increases until the end of the year.

Instructions for employers and information for individuals can be viewed on the HMRC website at www.hmrc.gov.uk/employers/epa.htm.

If you would like to discuss the changes in more depth or for more advice on the implications for payroll systems, please contact us.