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Bob L

Welsh Income Tax

Change is coming for tax payers residing in Wales

Tax payers resident in Wales will start paying Welsh Income Tax from April 2019.  They will have a proportion of their income tax paid directly to the Welsh Government, rather than just via the block grant.  The Welsh Government will also be able to set and vary rates of tax paid.

The Welsh income tax will be applied based upon residency, and so employees should make sure HMRC is holding their correct address.  If an employee needs to change their address they could be directed to their online personal tax account.  HMRC will remain responsible for collecting the taxes.

A New Tax Code Prefix

An employee subject to Welsh Income Tax will have a ‘C’ prefix to their tax code, so for instance their tax code could be C1185L.  This is similar to the Scottish Rate of Income Tax where ‘S’ is used as the prefix.

It is too early to say whether we expect very much to change, and in the first year of Scottish Income Tax the changes were minimal.  Initially it appears that there will only be changes with the rates, if any changes at all, and no introduction of new thresholds.  However, as can now be seen, Scotland have made their income tax scheme more complex, and there are marked differences from the main UK thresholds.

Acronyms and Abbreviations

On a positive note, although the acronym / abbreviation SRIT was frequently used for the Scottish Rate of Income tax, I have not spotted HMRC attempting WIT in this context.

Rates and Thresholds

Guide to Rates and Thresholds for 2018/19 Tax Year

(to aid employers – not for use for processing payroll)

Tax Rates

Showing each portion of a monthly salary and the tax rate that may be applied to it.
Based on a monthly paid employee with an 1185L tax code and month 1 (not a Scottish tax code)

Rate Monthly Pay
Tax Free Allowance  Up to £987.50
20% £988 – £3 862.50
40% £3 863 – £13 487.50
45% Above £13 489

Based on a monthly paid employee with an 1185L Scottish tax code and month 1

Rate Monthly Pay
Tax Free Allowance Up to £987.50
19% £988 – £1 154.17
20% £1 154.17 – £2 000
21% £2 001 – £3619.17
41% £3 620 – £13 487.50
46% Above £13 489

 

Auto-Enrolment

Monthly
Automatic Enrolment Earnings Trigger £833
Qualifying Earnings £503 – £3863

 

National Insurance

Monthly
Lower Earnings Limit £503
Employee Starts to Pay NI £702
Employer Starts to Pay NI £702
Upper Earnings Limit (employee contributions fall to 2%) £3863

 

National Minimum Wage

Hourly Rate
National Living Wage (over 25) £7.83
Aged 21 – 24 £7.38
Aged 18 – 20 £5.90
Aged 16 – 17 £4.20
Apprentice Rate £3.70

 

Statutory Payments

Weekly
Sick Pay £92.05
Maternity Pay (weeks 7 – 39) £145.18

 

The above rates are a guide only and subject to change and interpretation.  Please visit HMRC for up to date information.

 

Download a PDF version here

Payrolling Benefits Deadline

Register with HMRC before the end of this tax year if you want to process Benefits in Kind through the payroll in 2018.

Benefits in Kind

Benefits in Kind (BIKs) traditionally have to be reported via a P11D.  These are benefits an employee receives outside of the payroll but usually needs to pay tax for, such as a company car.  There is also a National Insurance liability for the employer.

Benefits in Kind and Payroll

No more P11Ds!

The main advantage for the company of using payroll to report Benefits in Kind is that there is no longer a requirement to submit the P11D forms.  You currently will still need to submit the form P11D(b) to report the Class 1A NICs liability, but this is far less onerous than multiple P11Ds.

Not all BiKs can go through the payroll, but if you have benefits such as medical or health insurance these are really straightforward to manage in this way.

Registration Deadline

To report Benefits in Kind through the payroll you must register your intention with HMRC before the start of the tax year.  If you ask to register mid-tax year HMRC may be able allow this, but you would still need to produce P11Ds but mark them as ‘payrolled’.

We reported this development last year, but as the deadline is rapidly approaching thought a reminder might be useful if you still intend to register.  This does not replacement PAYE Settlement Agreements, but these are changing slightly from April too.

 

28th February 2018

National Minimum Wage April 2018

National Minimum Wage Rates from April 2018

The National Minimum Wage and National Living Wages rates will increase in April, and all the rates will change together this year.  The minimum wage rates from April 2018 are as below:

From April 2018 Previous Rate Increase
The National Living Wage, workers aged over 25 years  £7.83  £7.50  4%
 Aged 21 – 24 years  £7.38  £7.05  5%
 Aged 18 – 20 years  £5.90  £5.60  5%
 Aged 16 – 17 years  £4.20  £4.05  4%
 Apprentice Rate  £3.70  £3.50  6%

Companies should ensure they meet these minimum requirements, although this is not always straightforward if, for instance, the employer provides accommodation.

The worker must be paid, on average, at or above the minimum wage for the pay reference period.  The pay reference period is determined by pay frequency and cannot be greater than 31 days.  The employer must ensure these minimums are met, and criminal action can be taken if they are not.

Care must be taken if the employer makes deductions for various items such as uniform or safety equipment, as these may bring the employee below the minimum.  Care must also be taken with salary sacrifice schemes, as the minimum wage will be calculated on the post sacrifice salary.

The rates were confirmed by the government in the Autumn Budget, and if you want further information on the National Minimum Wage please see here.

Pension Contribution Changes

Be prepared for the Auto-Enrolment Pension Contribution Changes!

There are auto-enrolment pension contribution changes that employers need to be aware of to make sure they are compliant this April.

The last employers to stage for their pensions will be in February 2018, then all employers will be involved with pensions in some way.  Even if an employer is not required to provide a pension scheme they will still need to make a declaration with The Pensions Regulator.

Most companies have chosen a tiered start to auto-enrolment, with the current default of 1% from the employer and 1% from the employee giving a total contribution of 2%.  When auto-enrolment pensions were launched in the UK the original 2% was to have increased in October, but now it will be increasing this coming April.

All new employers already have their pension duties starting from day one, and will need to comply with the current minimum contributions.  This means in April new employers will start with the 5% minimum the same as everyone else.  Ultimately there will be no tiered start at all.

Pension Contribution Changes

From the 6th April 2018 the following rates will apply –

5% minimum total contribution.  2% minimum from the employer with the employee to make up the remainder.

If an employer uses pensionable pay, and has self-certified the scheme’s compliance using set 1, then the total minimum contribution is 6%, with 3% minimum from the employer and the remainder from the employee.

So from April 2018 most employers will need to increase their contribution rates to remain compliant with the pension legislation.

The total can be made up wholly of an employer contribution, but can be split with an amount from the employer and the remainder from the employee.  There are minimum amounts for the employer as well as a total, as shown above.

Looking Ahead

April 2019 is when the contributions arrive at the targeted 8% for everyone.  For employers with self-certified schemes it may be slightly different, but for everyone else it is 8% with 3% minimum from the employer.

These changes should not present an issue, but companies need to make sure they are aware and the appropriate minimums applied.  For further information see here.

Scottish Income Tax

Scottish Income Tax 2018 / 19

There were a number of announcements in the Scottish Budget earlier this month, the most significant related to payroll is the introduction of a five tier Scottish income tax system.  These changes affect those employees paying Scottish income tax, which is determined by the main residence of the employee.

Employees paying Scottish Rates will have an ‘S’ suffix to their tax code, such as S1150L, and if an employee needs to notify HMRC of a change of address they can do so here.

The bandings are as follows for an employee with the standard tax allowance –

Personal Allowance (set at UK level) £11 850 0%
Starter Rate (new) £11 850 – £13 850 19%
Basic Rate £13 850 – £24 000 20%
Intermediate Rate (new) £24 000 – £44273 21%
Higher Rate £44 273 – £150 000 41%
Top Rate £150 000+ 46%

This will make for some interesting conversations as tax is already not straightforward, and if ever there are employees that want an explanation of how their net pay was reached there is more opportunity for confusion.  Also note the tax rate changes as well as the changes in bands.

The Scottish Government have an impact document available here and some further guidance available here.

What Does the Autumn Budget Mean for Payroll?

What does the autumn budget mean for payroll?

The Autumn Statement brought relatively few changes that will affect PAYE payrolls this coming April.

Probably the biggest change was in the announcement of further changes possible with the IR35 tax system.  This would bring the private sector in line with the public sector with more ‘contractors’ treated as ‘employees’, with their tax and NI deducted at source.  There is a consultation planned next Spring.  There was some anticipation of a move in April, but now it appears there will be a consultation process first.

Personal taxation thresholds will be adjusted in April, but the rates of 20%, 40% & 45% remain the same.  The thresholds for Scotland will be announced after the Scottish budget is fixed in December.  The marriage allowance has also had some adjustment.

2017 2018
Personal Allowance £11 500 £11 850
Basic Rate Tax Band £33 500 £34 500
Additional Rate Tax Band £150  000 £150 000
Marriage Allowance £1 150 £1 185

 

The National Insurance thresholds have also been increased a little, although the rates remain the same.

Weekly Rates 2017 2018
Lower Earnings Limit (to qualify for SMP etc) £113 £116
Primary Threshold (Employee starts paying NI) £157 £162

 

The National Minimum Wage and National Living Wage (NLW) rates also will be increasing from April 2018.

2018 Rate
25yrs old and over (NLW) £7.83
21 – 24 years old £7.38
18 – 20 years old £5.90
16 – 17 years old £4.20
Apprenticeship Rate £3.70

The employment allowance remains at £3000 per year, and the Apprenticeship Levy allowance also remains at £15000.

What impact do the tax and NI changes have to my employees?

There are too many variables to give an accurate answer to this, but there will generally be a little less tax and a little less National Insurance deducted.

However, if we consider an employee of thirty years old on £20 000 per year, with a standard tax code giving the full personal allowance –

2017

Tax : 20 000 – 11 500 = 8 500 Basic rate at 20 % = £1700
NICs: 20 000 – 8 164 = 11 836 Employee NI at 12% = £1420.32

Employer NI at 13.8% = £1633.37

 2018

Tax: 20 000 – 11 850 = 8 150 Basic Rate at 20% = £1630
NICs: 20 000 – 8424 = 11 576 Employee NI at 12% = £1389.12

Employer NI at 13.8 % = £1597.49

So in this example the employee will pay around £100 less per year in tax and NI, and the employer around £35 less NI.  Remember, these rough calculations make many assumptions and do not take into account items such pension contributions.

So, what does the Autumn Budget mean for Payroll?

There will be a small uplift in tax codes in April 18, and employees and employers may notice a small reduction in their PAYE payments.  Those employees on National Minimum Wage or National Living Wage will see their rates increase by around 4.5%.

For further information on rates please see here.

 

 

 

National Insurance Category

What is a National Insurance Category?

A National Insurance category letter is used by an employer to help calculate how much National Insurance they and the employee need to pay.  The category is not related to the National Insurance number; it is not the final letter as is sometimes mistakenly assumed.

Why is this important for Payroll?

The National Insurance category letter determines the National Insurance liability for both the company and the employee.  This is essential for running the payroll, as if an incorrect category is chosen it can be difficult to correct mistakes at a later date.

The majority of employees will be National Insurance category A.  National Insurance category A is the default category, and covers employees not in another category.

What categories are there?

Category Letter
A Default category for employees not in another category.  Standard rates for employee and employer apply
M Employees under the age of 21.  Reduced / Nil Employer contributions
C Employees over the state pension age.  Nil employee contributions.
H Apprentices under the age of 25 following an approved apprenticeship framework.  Reduced / Nil Employer contributions
J Employees deferring National Insurance because they are paying it in another job
Z Employees under 21 deferring National Insurance because they are paying it in another job
B Married Women and Widows entitled to pay reduced National Insurance.  This is not straightforward, see here.  We rarely see National Insurance category B employees.
X Employees who don’t have to pay National Insurance, for instance under 16s

 

There are also other categories for mariners, see here for further details.

In Summary

We find National Insurance categories are often poorly understood, and we do sometimes see mistakes made in the payrolls moving to us.  There are rumours of possible changes in the Budget on Wednesday, and it is useful to know how the employee and employer liabilities are affected by each category.

There are tables of the rates at the move common categories available here, and further information available from HMRC here.

Benefits in Kind and Payroll

Benefits in Kind have to be reported via a P11D, as these are benefits an employee receives outside of the payroll but usually needs to pay tax for, such as a company car. There is also usually a National Insurance liability for the employer.

This is no longer quite true however, as now employers have the opportunity to report Benefits in Kind via the payroll instead.

Benefits in Kind and Payroll

The main advantage for the company of using payroll to report Benefits in Kind is that there is no longer a requirement to submit the P11D forms. You currently will still need to submit the form P11D(b) to report the Class 1A NICs liability, but this is far less onerous than multiple P11Ds.

The advantage for the employee is that they pay as they go, so should not discover a tax liability when they reach the end of the year. More employees should ultimately have standard tax codes, despite receiving Benefits in Kind.

What do you need to do?

To report Benefits in Kind through the payroll you must register your intention with HMRC before the start of the tax year. If you ask to register mid-tax year, HMRC may allow this but you would still need to produce P11Ds but mark them as ‘payrolled’.

You can register most benefits to go through the payroll, and it is possible to specify individual employees if you do not want their benefits to be processed in this way.

Is there any additional work to do?

Registration is an obvious addition, but once the company has registered that benefit it will continue to be included for payroll until HMRC is notified otherwise. There is no need to re-register the same benefit each tax year.

You also will need to notify your employees. Once you have registered, you should notify them that you will be entering the benefits via the payroll, and what this means for the employee. You also need to provide information after the end of the tax year.

The end of the P11D?

It seems likely that eventually all benefits will be reported via RTI via the payroll. There may still be a need for the P11D(b) but this may well disappear too. It is not completely straightforward to process the benefit through the payroll, but it is far more streamlined than multiple P11Ds.

The P11D will probably go, but not just yet.  We are very positive so far about Benefits in Kind and payroll, but you need to make sure you register this tax year if this is something you intend to take advantage of from April ’18.

For more information see here.

1st October Pension Deadline

The Pensions Regulator has issued reminders that companies registering as employers after the 1st October will have pension duties as soon as their first member of staff starts working.

The 1st October pension deadline has crept up on us a little, but new employers must be aware of this.  Employing staff on or before the 30th September of will have a later staging date, and you can check when here.

Auto-Enrolment pensions can cause some issues, so employers must make sure they are prepared.  It does not have to be difficult, but small companies especially can spend too much time on the administration and it is all too easy to make mistakes.