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Income Tax Preparation and Income Tax Rate UK

Income Tax changes announced 13th May 2008

It is government intention to increase the personal tax allowance by £600 from £5435 to £6035 back dated from the date applied which is expected to be the first week of September to the start of the financial year 6 April 2008.

Existing payroll software clients who bought prior to the announcement on 13th May 2008 will only need to enter a normal tax code amendment changing the tax code from 543 to 603 on the employee details section of the main payroll file with the effective date which will be advised by HMRC and expected to be 1st September 2008. 

Payroll software clients who have employees earning over £40,835 will also be required to enter the new tax code amendment although such employees will not receive a tax reduction as the 40% higher tax rate threshold has also been reduced by £600 from £36,000 to £35,400. Appropriate amendments have been made to the payroll software to correctly calculate the new tax code and take account of the reduced higher tax rate threshold therefore all payroll software clients who downloaded the payroll software before 14th May and also have employees earning over £40,835 should revisit the payroll download page and re-download the payroll file in the payroll software package. The revenue returns file and the payslip file are not affected.

Pay As You Earn, Paye and Income Tax

By law, anyone making payments to employees or members of occupational pension schemes is obliged to operate the PAYE system involving income tax preparation. Income tax and class 1 national insurance contributions must be calculated from the payments made and sent to HM revenue & customs by the 19th of each month following deduction.

Employees are entitled to receive written confirmation of income tax deductions that have been made through:

• payslips, showing gross pay, income tax, national insurance and other deductions made and net salary pay.

• a P60 certificate at the end of each tax year, confirming the amount of gross earnings, and the income tax and class 1 national insurance contributions deducted; and

• a P45 certificate whenever you change jobs, which shows the income tax code operating on your earnings at the time you left and, in some cases, the earnings and income tax deducted in the tax year to date.

DIY Accounting paye system satisfies the requirements relating to income tax preparation and national insurance contributions with formulae in the automated payroll software that calculate income tax UK working as an income tax calculator. A paye tax calculator UK specific you don't even need to know is there to correctly calculate income tax.

No entries are required to the income tax ad national insurance files within the main payroll system which calculates income tax to be deducted working unseen in the background as an income tax calculator and a national insurance contribution calculator. Once employee details have been entered and checked then all that remains is to enter the employee gross pay to trigger the tax and national insurance calculation and automatically fill in the salary slips template.

1. The income tax file for each employee is updated by the Employee details sheet and shows the income tax code applicable each week or month. It is essential then that whenever employee details are entered or changed that the income tax file is open so these changes can update the income tax code.

2. The income tax file contains all the inland revenue income tax tables. When entering pay details on the payroll file the payroll system is triggered to start its paye tax calculator work  by looking up the income tax to be deducted in HM Revenue & Customs  income tax tables. It is vital that the income tax file is open when employees pay is entered to allow the income tax to be looked up in the income tax table. Income tax preparation could not be easier, enter the employees income tax code once a year and the rest of the income tax preparation is automated.

Key Income Tax Benefits

• No entries required to the income tax file which automatically calculates the income tax coding for each employee for use by the system to calculate income tax for each employee.

• No entries required to the income tax file which has the inland revenue manual income tax tables built in to turn the payroll software into an income tax calculator to look up the income tables and deduct the previous periods income tax already paid.

2008-09 Budget Changes

10p starting rate of tax is abandoned

Basic rate of income tax 20%

Threshold level at which 40% higher rate of income tax starts is £36,000 announced in March 12th 2008 Budget and subsequently amended to £35,400 on 13th May 2008 to be applied in September 2008

DIY Accounting "Automate income tax preparation using the built in income tax calculator within the payroll tax system plus income tax rate UK"

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Last modified: 03/17/09