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Beware Good Friday 2007 - Tax year 2007-08 could prove a veritable minefield!

For the first time ever in the history of PAYE, the start of a new tax year - April 6 - falls on a Good Friday and is likely to cause major confusion.

Simon Parsons, Payroll and Legislation Product Manager at Ceridian and 'Person of the Year' at the Institute of Payroll Professionals 2006 Awards, observes:

The start of the next tax year may impact weekly, fortnightly, lunar and monthly payrolls where payments would normally have fallen on 6 April 2007. Take, for example, monthly paid employees. If their payments have to be brought forward, it will create a month 13 in the current tax year and only 11 payment months in the next. This is going to cause potential confusion and issues for employers and employees, not to mention some payroll software developers.Simon Parsons

At the heart of the problem is the fact that direct credit payments cannot be made through BACS on Bank Holidays. Tax year 2007/2008, like any other tax year, starts on 6 April 2007 (Good Friday) and the next day of the working week, Monday 9 April 2006 is Easter Monday. Since both dates are Bank Holidays, some employers may choose to pay their employees early, on for example 5 April 2007 or late, on for example, 10 April 2007.

HMRC has stated that where, owing to the Good Friday Bank Holiday, pay due to be paid on 6 April 2007 is paid early, PAYE and NIC should be applied in tax year 2006-07.

This is further complicated for weekly payrolls as the next payment due on 13 April 2007 is tax week 2. And for monthly payrolls that pay on the sixth day of the month, the next payment on 6 May 2007 is tax month 2.

Weekly paid employees on cumulative tax codes will receive one week's pay but two weeks' free pay (tax allowances). As a result, many employees will have less PAYE tax deducted than normal on their first payment in tax week 2. The final pay day in 2007-08 will also be a PAYE tax week 53, even though there may only have been 52 payments in the tax year! Similar impacts may apply for fortnightly, lunar and monthly paid employees if they would normally have had payments on 6 April 2007. Employers need to be mindful of the potential pitfalls. Tax year 2007-08 could prove a veritable minefield!Simon Parsons

Read Simon's payroll advice article for a more detailed explanation of how this might affect your payroll strategy in the 2007-8 tax year.

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