PAYE: Using tax tables for the basic rate band

We have received some questions about the introduction of the basic rate band limit following the 12 March 2008 Budget, and we would like to clarify the position.

The implementation of the tax deduction changes for the 2008-09 tax year dates back to the 2007 Budget.

In the 2007 Budget the Chancellor of the Exchequer announced the rates of tax deduction to be applied from 6 April 2008. This meant HM Revenue & Customs (HMRC) had to have new tax tables ready to be used from 6 April 2008 (rather than 18 May 2008) to reflect the removal of the 10 per cent rate for PAYE income and the reduction in the basic rate from 22 per cent to 20 per cent.

Employers with computerised payrolls will need to ensure they have new software with the April 2008 changes ready for the start of the new tax year.

In the 2008 Budget on 12 March the Chancellor of the Exchequer announced the basic rate bandwidth would be extended to £36,000. This change is to be implemented on the first pay day after 17 May, and will require a second set of tax tables with a ‘use from 18 May’ instruction. These revised tax tables are currently being prepared and will be available to download from the HMRC website or to order from the Employer Orderline in mid April 2008.

Employers with computerised payrolls will need to ensure that their software already includes these changes or is updated again to include the revised tax tables ready for use on the first pay day after 17 May 2008.

Although the rate bandwidth changes are being implemented on the first pay day after 17 May, the way that PAYE calculations are made on a cumulative basis each week or month means that changes will be backdated to 6 April 2008 for all employees affected (those who pay tax in the 40 per cent rate band). However, where PAYE is being operated on a week one/month one basis the new bandwidth will be applicable from the first pay day after 17 May 2008.