26 February 2007
Tax changes for 2007/08
From April the new personal tax allowances and National Insurance allowances announced in the December Pre-Budget Statement come into effect. There may also be a further change to your payroll costs following the actual Budget Statement that is due to be delivered in March/April. This is likely to be a small increase in the 10% tax band, which will result in a small change to your cost and these are likely to be applied retrospectively in May (to cover April as well), once the Revenue print and reissue new tax tables.
If you have agreed a gross wage with your employee, then the effect of these changes will automatically be reflected in a small increase (approximately 75p per week, as the Chancellor has increased the tax free and NI free allowances by £190 per year) in your employee's weekly net wage and this will be shown on their payslips in April. This will be at no extra cost to yourself, and indeed you will also see a small reduction in your own Employer’s NI Contribution.
However, if you have agreed a net wage with your employee, then you have the choice to pass the benefit of these changes on to your employee, or not. If you would like your employee to receive the benefit of these changes then please click on the link at the bottom of this page and fill in the form. If you do not respond then your employee's net pay will be kept at its current level.
We generally advise passing the benefit of tax cuts on to an employee since they are introduced by the Government for this purpose, although we must stress that this decision is entirely up to you. If you were already considering giving your employee a salary review then this might be an appropriate time to do so. We will issue a statement on any further changes in the Budget on our website once the Budget has taken place. We would remind you, that if you decide to pass these benefits on to your employee, you are agreeing a gross wage with them. This will result in a new net rate of pay, that will fluctuate as the tax and NI are calculated, and any pro-rata payments to employee will also be calculated on a gross basis.