Income tax changes will 'cause chaos for small businesses'

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The Independent Online

The changes, designed to get Labour rebels to back the abolition of the 10p tax rate, will see personal allowances – the amount each individual can earn before income tax is due – being raised by £600 for basic-rate taxpayers.

But Simon Briault from the Federation of Small Businesses says many of his members are unprepared. He fears payroll mistakes are inevitable: "The problem is that many small business owners don't know the change is coming and that they are going to have to backdate the new personal allowance to April. This could become a massive issue if wages are paid incorrectly."

Mr Briault believes that firms with only a few employees where the owner does the payroll are most at risk of making mistakes. "Big firms have personnel departments – they're fine," he says. "It's the thousands of small enterprises with a handful of employees I fear for. This is about the Government getting itself out of a political hole, with no thought for the businesses that are going to have to implement it."

Likewise, Chas Roy-Chowdhury, head of tax at the Association of Chartered Certified Accountants, anticipates problems and urges staff to watch their wage packets: "Employees must check their tax code and see that the changes are reflected in their take-home pay. Because the changes are backdated, people should see quite a difference in their September pay packet. If they don't, then something may be wrong."

The confusion will be compounded as the threshold above which income tax has to be paid at the higher 40 per cent rate is also due to reduce by £1,200 in September. "Tens of thousands of people who are currently just below the earnings threshold for the 40 per cent tax band should suddenly be paying the top rate of tax," Mr Chowdhury added. "All these changes in the middle of a tax year are very complex for employers and employees to get their heads around, and there are bound to be problems. HM Revenue & Customs must alert the public to the changes – an advertising campaign is needed."

An HMRC spokesman said employers would be notified in writing, adding: "There is determination at the highest levels to see things run smoothly but no plans to advertise."