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PAYE tax changes for 2016/17

Several tax changes were introduced to PAYE at the start of the 2016/17 tax year. 

Preparing your payroll system couldn’t be more important for your business and employees.

In this post we briefly outline the main tax changes.

Personal allowance 

Personal allowance for most employees per year is £11,000. Income tax is paid each tax year if income is above the allowance.

The following tax rates apply:

Band Income Tax rate
Basic rate £11,001 to £43,000 20%
Higher rate £43,001 to £150,000 40%
Additional rate Over £150,000 45%

National living wage 

The new national living wage of £7.20 an hour applies to workers aged 25 and over.  Those between 21 and 24 are entitled to the national minimum wage. 

The following rates apply from 1 April 2016 and there will be updates again in October.

Age Hourly rates until October 2016 Hourly rates from October 2016
25 and over £7.20 £7.20
21 - 24 £6.70 £6.95
18 - 20 £5.30 £5.55
16 - 17 £3.87 £4.00
Apprentice* £3.30 £3.40

*apprentices aged 16-18 and those aged 19 who are in their first year*

Benefits in kind 

Employers can now payroll tax on benefits in kind (BiKs) without having to submit a P11D form after the end of the tax year. 

This is done by adding the cash equivalent of the employees’ benefits to their pay and then taxing them through payroll. 

Employers providing such as company cars and health insurance have to register them online with HMRC via the employees taxable benefits and expenses service before the start of the tax year. If you've missed the registration deadline, you can't payroll benefits for 2016/17. 

Employment allowance

Employers paying employers’ class 1 national insurance can claim the employment allowance.

Employment allowance increased from £2,000 to £3,000 for 2016/17.

You can claim your allowance through your payroll software.

Companies with a director as the only employee are no longer entitled to claim the allowance.

Visit our services pages to find out how we can assist with managing payroll.

Contact us 

If you would like to know more about the following tax obligations then speak to one of our advisers today to find out how we can help you manage your business taxes.