Tax becoming more taxing, SMEs warned

SMALL firms are being warned to prepare mid-year tax changes that will see companies updating their payroll systems for a third time this year.

Announcements made by Chancellor Alistair Darling to abolish the 10p tax band countered by a decrease in basic tax rate bandwidth affects all employers who are responsible for calculating and deducting income tax from their staff wages.

Normally, businesses have to update their payroll systems twice a year – in
April and May. This year will see a third round up being made in September – a month when many firms have staff still away on holiday.

Moreover, due to the unusual way the new changes were announced, they can not be implemented until the Finance Act gains Royal Assent.

Accordingly, HM Revenue and Customs has not published detailed guidance,
leaving employers in the dark.

Steven Tucker, managing director of The Payroll Site, an online payroll services for small UK employers, accountants and bookkeepers, said that firms using a payroll software package should check whether their vendor will supply an update under their support contract.

Employers using manuals and tools from HM Revenue and Customs may have to wait until the end of August for updated versions. Employers using an online payroll service or a bureau can expect the changes to be done for them.

He added: “Staff should be prepared for questions from their employees, who may see some unexpected fluctuations in their net pay, as the tax deduction decreases in September and then rises again the following pay day.”