Pre-Budget Statement - Payroll summary of changes

The Chancellor presented his 2006 Pre-Budget Report (PBR) to Parliament on 6 December 2006. Most of the matters relevant to Payroll and HR were set out in supporting documents and press releases issued at the time. As UK legislation requires the PAYE, NICs and related thresholds to rise each year in line with the Retail Price Index, they are increasing, from 6 April 2007, by 3.625% (i.e. the year-on-year increase at September 2006), rounded up according to the statutory rules in section 257C of the Income and Corporations Taxes Act 1988. (This more precise percentage figure is needed to understand the increase to the Blind Person's Allowance.)

There were also announcements on a number of other measures, including:

• additional resources committed to enforcing compliance with the national minimum wage
  
  
• new powers to investigate a non-disclosed tax avoidance scheme
  
  
• technical improvements to the new simplified pensions tax rules
  
  
• applying PAYE and NICs to managed service company schemes
  
  
• restoration of six-year limitation period for recovery of direct tax.

These subjects are discussed in separate items in this newsletter. The Pre-Budget Statement and the associated documents are available on the Treasury and HMRC websites.

National Insurance Thresholds

The NICs thresholds for 2007/08, effective 6 April 2007, are as follows:

Most of the NICs rates are unchanged for 2007/08. However, as provided in the Social Security (Reduced Rates of Class 1 Contributions, Rebates and Minimum Contributions) Order 2006, as approved by Parliament in March 2006, the employer rebates for occupational pension schemes increase from 6 April 2007, in the case of salary-related schemes from 3.5% to 3.7%, in the case of money purchase schemes, from 1% to 1.4%. The effect is that the employer's secondary contribution will decrease from 9.3% to 9.1% for salary-related schemes and from 11.8% to 11.4% for money purchase schemes.

Tax Allowances

Changes to bandwidths and any changes to income tax rates will be announced in the Budget Statement in March/April 2007. The new tax allowances from 6 April 2007 are shown in the following table. The increases are in line with inflation.

The personal allowance for employees under age 65 is set at the same level as the NICs earnings threshold. The new emergency tax code from April 2007 will be 522L and the weekly tax threshold will be £;100. The change to L suffix tax codes will be made in bulk from the start of the 2007/08 tax year. Instructions will be provided on form P9X, to be issued in February 2007 on the Employer CD-ROM. The update will involve an increase in 19 points to all L tax codes.

Any changes to the rates and thresholds will be announced by the Chancellor in the Budget Statement in March/April 2007. Instructions on how to implement any changes will be provided in the Employer's Budget Pack, sent out subsequent to the Budget, and will be applied on the first payday on or after a date in May or June 2007. Based on practice in recent years, the date may be 18 May, i.e. week 7, or 15 June, i.e. week 11.

The existing taxable pay tables SR + B to D (dated May 2006) will continue to be used until the week in 2007/08 when the Budget changes are applied. New tables are supplied with the Budget Pack.

Statutory Payments

Under powers set out in section 150 the Social Security Administration Act 1992, the Secretary of State of Work and Pensions is required to review the value of all social security benefits for each tax year. The uprating rules are much less precisely defined than they are for tax and NICs. The increase must be based on the increase in "the general level of prices", but the way in which that is determined and the period over which it is calculated are at the Secretary of State's discretion. In addition, the result of the calculation may be adjusted " so as to round any sum up or down to such extent as he thinks appropriate".

The increases in the rates of the statutory payments shown below have been calculated by applying the annual increase in the Retail Price Index at September 2006, with the result rounded down to the 5p below.

Statutory Sick Pay

The weekly rate of SSP will increase from £;70.05 to £;72.55 from 6 April 2007. Daily rates are calculated by dividing the rate by the number of qualifying days in the week. The Lower Earnings Limit, the level at which an employee's average earnings must reach to qualify for SSP, increases to £;87 per week from 6 April 2007.

Statutory Maternity, Paternity and Adoption Pay

The changes to the rates, percentages and thresholds for SMP, SPP and SAP, effective for payment weeks starting on or after 1 April 2007, are as follows:

The Lower Earnings Limit, the level at which an employee's average earnings must reach to qualify for SMP, SPP or SAP, increases to £;87 per week from 6 April 2007.

...UK Payroll News - Latest


Sources:
Income tax allowances, National Insurance Contributions etc
The Income Tax (Indexation) (No.2) Order 2006
Notes for Payroll Software Developers - Series 10 Number 32 December 2006

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Pre-Budget Report will be on Wednesday, 6 December 2006.

...UK Payroll News - Latest


Sources:
2006 Pre-Budget Report

The UK Payroll News is sponsored by HRD & Payroll Solutions

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