All Posts By

Bob L

National Insurance Changes for April 2022

National Insurance Changes for April 2022

The Health and Social Care Levy

There will be more details released nearer the time but as previously announced there are National Insurance changes for April 2022 where employer and employee National Insurance contributions will be raised by 1.25%. This will just be for one year then the Health and Social Care Levy of 1.25% will be introduce in April 2023.

The increase from April 2022 is for those who currently pay National Insurance contributions but the new Levy in April 2023 will also include those above the state pension age but still in work. This means employees with NI Category C will also pay the Health and Social Care Levy if they are still working. The Levy will not be charged on pensions.

The increase in April 2022 will be reported via RTI in the usual way and may be shown separately on the payslip. We have not seen any working examples yet and do not know if we will be able to split out the additional amount or not. The Levy should be shown separately on the payslip from April 2023.

Calculating National Insurance

National Insurance is not straightforward to calculate but at least is not impacted by tax codes. There are National Insurance Categories where some individuals may not pay National Insurance or employers may be exempt but most employees fall into Category A with full National Insurance applied.

To calculate National Insurance there are a few thresholds that need to be known, usually the Primary Threshold, Secondary Threshold and Upper Earnings Limit.

For NI category A:

  • Primary Threshold: The employee pays NI on earnings above this threshold. The rate is currently 12%, so will rise to 13.25% in April 2022. The current threshold is £797 per month.
  • Secondary Threshold: The employer pays NI on earnings above this threshold. The current rate is 13.8% so will rise to 15.05% in April 2022. The employer pays NI on all earnings above the threshold which is currently set at £737 per month.
  • Upper Earnings Limit: The employee contributions drop to 2% above this limit, currently £4189 per month. There will be an additional 1.25% from April 2022.

For other NI Categories there may be different thresholds and the action at each threshold may change.

What is the impact?

Payroll will increase in complexity again, which was our immediate observation, but there will be an impact on employees and employers.

The government has published the expected impact on individuals: a typical lower rate taxpayer will pay around an additional £180 per year and higher rate taxpayer an additional £715. Employers will also be impacted as their whole National Insurance Liability will increase.

Other changes

There are new NI Categories arriving in April as well but full & final details have not been published. We expect at least one of the new letters will be associated with forces veterans where there is no employer’s National Insurance to pay.

National Minimum Wage 2021

National Minimum Wage from April 2021

 

Hourly Rate
23 years old and over (National Living Wage) £8.91
21 to 22 £8.36
18 to 20 £6.56
Under 18 £4.62
Apprentice Rate £4.30

(From gov.uk)

The minimum wage is rising in April and the age where the National Living Wage is applied falls to 23. The simplest way to ensure you meet the minimum wage criteria is to pay at an hourly rate that is at least at the minimum age for that employee.

Example

For a worker aged 24 and working 37.5 hours per week the minimum wage from April 2021 would be as follows:

£8.91 x 37.5 = £334.13 per week

Using weekly rate x 52 to get an annual figure then divide by twelve this gives a monthly rate of:

£1447.90

Last year a worker of the same age working the same hours would have had a monthly minimum wage of £1332.50.

NMW Calculations

The minimum wage is applied for the pay reference period, which is the period the hours are worked. This means if you are paying for hours worked in March you do not need to apply the minimum wage changes until April hours are worked. This can become complicated however and for many companies it will be simpler to ensure the minimum is met in the current period.

Pay counting towards minimum wage can also include other pay items besides basic hourly pay such as bonuses or commission. There are many pay types that do not count such as shift or overtime premiums, expenses and tips. For many companies it may be simpler to consider the basic hourly rate. There is a list available of payment types that qualify and do not qualify on the HMRC website available here.

NMW and Deductions on the Payslip

If deductions are made from the worker great care is needed as HMRC will consider many deductions as reducing the workers wage rate for minimum wage calculations. Salary sacrifice pensions are a common pitfall but also employees purchasing goods or services and paying through their wage slip may fall foul as well.

National Minimum Wage calculations can become complex and anyone considering complex pay arrangements should take great care.

Useful Links

ACAS
GOV.UK

Rates Announced for April 2021

Some Rates have been announced for April 2021

Some details have been released of the rates expected to come into force for the 21/22 tax year.  This could change but these are the values HMRC are expecting to use and we would hope there will be no surprises with everything else that is going on.

Also remember IR35 rules are to come into force in April following their delay from last year, this will affect you if you have contractors.  Small companies should remain exempt but you will still need to check and record against the criteria.

National Minimum Wage from April 2021

Note the reduction in age from 25 to 23 for the national living wage rate.

Age Range Rate
Aged 23 and above (national living wage rate) £8.91
Aged 21 to 22 inclusive £8.36
Aged 18 to 20 inclusive £6.56
Aged under 18 (but above compulsory school leaving age) £4.62
Apprentices aged under 19 or in their first year £4.30

National Insurance

The lower earnings limit remains the same at £120 per week but the bands where National Insurance starts to be payable are moving up very slightly. The primary threshold where employees start making contributions remains at a different level to the secondary level where the employer’s contributions start.

Weekly Monthly
Lower Earnings Limit £120 £520
Primary Threshold (employees) £184 £797
Secondary Threshold (employers) £170 £737
Upper Earnings Limit £967 £4189

Qualifying earnings used for auto-enrolment pensions is still tagged to the band of earnings between the lower and upper earnings limits so pension contributions may also increase slightly. The Pensions Regulator may change this but we would expect plenty of notice.

Statutory payments

The statutory payment rates are increasing slightly next year.

SMP rate from week 7, whichever is lower £151.97 or 90% of the employee’s average weekly earnings
SSP £96.35 per week (£19.27 per day for a 5 day worker)

 

We expect these rates to come through but there could be changes announced. Current guidance says furlough pay is not pay for hours worked so the change in rates will not affect furlough amounts immediately unless the guidance changes. If you are using a flexible furlough arrangement you must ensure the National Minimum Wage requirements are met for the hours worked.

The Extended Furlough Scheme part 2

The Extended Furlough Scheme

Furlough was extended to 31st March 2021.  The Coronavirus Job Retention Scheme, or furlough scheme, was due to end on the 31st October to be replaced by the Job Support Scheme but the Chancellor announced the extension instead.  The Job Support Scheme was less generous and more complex.

There have again been several updates to the extended furlough scheme and there are likely to be many before March.  The scheme currently pays 80% of the employee’s usual wage and is available for employees paid and reported to HMRC before the 30th October 2020.  Note it is now the RTI reporting date, usually pay date or before, that is important rather than the employee start date.

Calculating Furlough Pay

The usual wage can be made up of several pay types such as salary or hourly pay but additionally other contractual payments such as overtime or commission.  Calculating the usual wage to be used as the reference value for furlough pay can be straightforward with employees on a regular wage with no other payments, but it is worthwhile checking the Government guidance.

Salary sacrifice arrangements, including pensions, add to the complexity; read the guidance carefully as it should be the post sacrifice payment used for calculating the furlough pay.

For claims from 1st November you can use pay and hours from 6th April 2020 to calculate an average wage if necessary.

Furlough Claim Deadlines

There are new deadlines to be aware of, and they are tighter than previously.  30th November is the deadline for claims for periods up to 31st October, and 14th December for periods up to 30th November.  This means claims for November have less time to be prepared and submitted than previously and this pattern is forecast to continue.

Claims from the 1st November must be submitted by fourteen days following the last day of the month, rolling to the next working day if a weekend and there is a calendar on the furlough website.

Further notes and some changes from the previous furlough scheme

  • The claims are to be made via the online portal which is already open for claims for November.
  • There is no maximum number of employees for the claim and employees still need consultation and written confirmation that they are furloughed but the deadline for retrospective furlough agreements past on 13th November.
  • There is no minimum period for flexible furlough, but the minimum claim period is 1 week.  Employees can have repeated periods of furlough.
  • Furlough pay cannot be used as a substitute for redundancy payments and also cannot be used during notice periods.
  • Claims can still be deleted within 72 hours of being made and there is still the opportunity for corrections if there are errors in earlier claims.
  • HMRC have a furlough pay calculator for fully furloughed employees but there are a few scenarios where a manual calculation is still required.
  • HMRC will publish details of companies making furlough claims from December, which may include indicative amounts that have been claimed.  HMRC plan to provide further details of what this will entail at the end of November.
  • Where a claim period spans calendar months separate claims are still needed as each claim can only be for a period within a single month.

Current requirements for Furlough and Payroll

It is not necessary to separate furlough pay and any other pay on the payslip but you may find this useful as part of your record keeping requirements.  Flexible furlough is calculated as previously, using calendar days and deducting hours worked and our temporary workbook is going to be rewritten.

Care is needed at all steps of the furlough calculation and it is worthwhile noting that when the payment is reported for RTI there is nothing to distinguish a furlough payment from any other payment, it is just gross pay for tax and NI.

The Extended Furlough Scheme part 1

The Extended Furlough Scheme

The furlough scheme is to be extended for a further month from the 1st November 2020.  The basis will be similar to August; the employee will receive 80% of their reference salary up to £2500 per month and the employer will be reimbursed for this amount.  The employer will need to pay the employer’s National Insurance and pension contributions although the Employment Allowance will be available to offset the NI.

Job Support Scheme

The Job Support Scheme was due to come into effect on Sunday 1st November but will be postponed until the furlough scheme ends.  The government have left the doors open to extend the furlough scheme further if they think it is needed, so currently there is no date for when this new scheme might be introduced.

The furlough scheme is more generous than both Job Support Scheme (open) and (closed) which offered up to 66.67% of salary for hours not worked and with a lower cap.  With JSS (open) the employer was also expected to contribute a small amount to the hours not worked as well.

Coronavirus Job Retention Scheme Extension – The Extended Furlough Scheme

Seven consecutive days is the minimum time a worker can be furloughed.  For workers with reduced hours due to the COVID pandemic the flexible furlough scheme will also still be allowable.  We have a template to assist with calculating and checking flexible furlough.

All employers will be eligible and you do not need to have claimed for furlough previously to qualify. Publicly funded employers should not claim under this scheme.  Employees can be furloughed from November even if they have not previously been furloughed.

Employees will need to have been on the payroll and reported via a Real Time Information (RTI) submission before the end of October to be able to claim.  It is important to note that a start date is not mentioned, it is the fact that the employee was on a payroll and with RTI submitted prior to the end of October.

The amount to claim is 80% of the usual hours that are not worked and details will follow with the method to calculate what are usual hours and pay.

Full details have been promised to follow shortly.

Employment Allowance and Furlough Pay

Employment Allowance for Furloughed Workers

You cannot claim Employment Allowance against furloughed workers, and this is for the whole of the tax year.  We have a suspicion that HMRC will apply this retrospectively for claims in the previous tax year as well, and their guidance clearly warns against fraudulent claims.

If your company is eligible for Employment Allowance you must either deduct the Allowance from the National Insurance Contributions claimed for furlough, or the NICs claimed from the Employment Allowance.  You cannot claim NICs for furloughed workers in the first part of the tax year, and then apply the Employment Allowance later.

We know this is tripping people up and it is not straightforward.  There is HMRC guidance to follow but the principle is that you cannot receive relief for the same NIC twice, and HMRC will apply the Employment Allowance to furloughed workers first.

If you have over- or under-claimed there is now the ability to submit corrections.  These are easier to correct with a subsequent claim, but you can also contact HMRC directly.

Example

Claimed £1500 of employers NICs for furloughed worker, then the amount of Employment Allowance is:

4 000 – 1 500 = £2 500

It is probably simpler to not claim the £1500 on the furloughed workers in the first place, as current guidance is to contact HMRC where you will be claiming less than the full £4000.  We recommend not claiming the first £4000 of furlough employer’s NIC in each tax year.

Reassurance from HMRC

Some reassurance is given in this quote from the .gov website “We will not be actively looking for innocent errors in our compliance approach.” HMRC 19.8.2020

This also follows on from earlier statements saying measures will not be retrospectively applied when they have changed.  Which comes back to the requirement to keep good records.

Furlough Claim Changes from August

Furlough Claim Changes from August

Furlough claims are changing from August as you can no longer claim for employer’s National Insurance Contributions or pension payments, so the amount that can be claimed is reducing.

The employer continues to pay the NICs and pension contributions, as well as the 80% furlough pay which is still subject to the £2500 cap per month, but the amount of support from the government is reduced.

One thing to bear in mind when calculating costs is that the reduction from 80% to 70% will be slighter greater than 10%, as it is 10% of the greater amount of the reference pay, not the furlough pay.  The 80% furlough payment still needs to go to the employee, but the employer will be making up the shortfall.

Example Furlough Claim

Some example calculations for August, September and October are as below.  A simple total gross payment is taken, and no employer’s NICs or pension payments have been added.

Total Furlough Payments Grant Calculation Total Grant
August £10 000 10 000 x 1 £10 000
September £10 000 (10 000 / 8) x 7 £8 750
October £10 000 (10 000 / 8) x 6 £7 500

The calculation is far simpler than in previous months, but then there is less available to claim.  The total reference payment used in the above would have been £12 500.

What this means in practical terms

Continue to use the furlough pay calculation as previously and put the 80% through the payroll for furlough pay.  If you are using flexible furlough the payroll calculation remains the same, but again when the claim is made the total will be reduced in September and October.  When you come to make the claim use calculations as above, in September divide the total furlough payment by eight and multiply by seven, and in October divide by eight and multiple by six.  Remember to keep records!

NI and Pension Calculations For Furloughed Workers

National Insurance for Furloughed workers in July

There are changes proposed with the way employer’s National Insurance is calculated for the period of July.  The proposal is more in line with the original guidance issued up to the 20th April.

The secondary NI threshold is taken and divided across the number of calendar days in the period, it is then multiplied by the number of furloughed days.  This value is deducted from the furlough payment, and the claimable employer’s NI is then 13.8% of the remainder.

Secondary threshold for NI = £169 per week or £732 per month for July 2020

Employers should still take the employment allowance into account where necessary.

For example:  An employee is on furlough of £300 per week and is paid 2-weekly.  They are furloughed for the whole of a two-week period in July, are NI category A, but also receiving a top up of £100 per week.

£300 x 2 = £600 total furlough pay

£600 – £338 = £262

Maximum employers NI to claim = 13.8% of £262 = £36.16

The National Insurance on the £100 is disregarded for the claim, unlike at the moment where the claimable amount can actually increase.

For workers on flexible furlough the equation is the same but using hours instead of days.  This is a little less clear in the guidance but appears to be:

NI threshold for period / usual number of hours in that period = NI threshold per hour

NI threshold per hour x number of hours furloughed = threshold available for furlough pay

Furlough pay – available threshold = furlough pay subject to NI

Furlough pay subject to NI x 0.138 = Employers NI that can be claimed where applicable.

From 1st August the employers NI can no longer be claimed anyway, so this only needs to be managed for one month.

 

Employer’s Pensions for Furloughed workers in July

For the employer’s pension that can be claimed for furloughed workers in July there does not appear to be any changes from June other than they have a separate section in the guidance.  This proposal is similar to the NI in as that it is similar to the initial proposals before 20th April, but then in the more recent changes was already moved to this anyway.

Take the relevant lower threshold for qualifying earnings and divide it by either days for a part furlough period, or hours if flexible furlough.  You then multiply this by the number of days or hours furloughed to get the threshold to deduct from the furlough pay.

The lower qualifying earnings threshold is £120 per week, or £520 per month.

The maximum employers auto-enrolment pension to claim is either the actual amount or 3% of the furloughed workers wage, whichever is lower.

For example: Monthly paid employee furloughed for whole period paid £2000 furlough pay and £1000 top up.  The employers pension contribution is £90

2000 – 520 = £1480

3% of 1480 = £44.4

£44.4 < £90

Therefore, for this employee £44.4 can be claimed in July for the employer’s pension contribution.

From 1st August the employer’s pension contribution can no longer be claimed.

Flexible Furlough

Flexible Furlough Pay

As part of the Coronavirus Job Retention Scheme from 1st July 2020 workers can return to work on reduced hours whilst remaining furloughed.  Where the flexible options is used and an employee is returning to work on reduced hours you must know the hours usually worked as well as the hours worked this period.  This is not so straightforward, but HMRC have been quite specific with how they want this calculated for furloughed workers.

Usual hours worked / the period over which those hours are worked = average per day

Average per day x number of hours in the pay period = the total usual hours worked

If the total usual hours worked is not a whole number then round up.

Eg Monthly paid worker on 37 hours per week in July

37 / 7 = 5.29

5.29 x 31 = 163.99

164 hours usually worked in July

(this is not the equation we would typically use to work out average monthly hours!)

It is more complex where an employee works variable hours but still possible if you have the information to hand.  The first part of the equation could be total hours / 300 days for instance.

You can deduct the number of hours worked in the pay period from the usual hours to give the furlough hours that can be claimed.

The amount that can be claimed is the usual process of calculating the 80% grant amount and applying caps as necessary.

Grant amount x (furlough hours / normal hours) = the furlough grant to claim

It looks like hours should always be used and not days, there is no guidance for how to calculate flexible furlough payments using day rates.  Again records should be kept.

HMRC have a few examples with the flexible calculation available here.

Furlough Pay Changes 1st July

Furlough Pay Changes 1st July 2020 (CJRS)

There have been several changes announced for the Coronavirus Job Retention Scheme coming in from 1st July.  The July is a threshold, and it looks like claims will not be able to cross June and July, or July and August.  There is also going to be a new template released for employees with over 100 employees furloughed.

Claims for July will not be able to be submitted until into July, and all claims for June must be completed by 31st July.  Probably the biggest change for July is that furlough is to become flexible, so employees can return to work on a part time basis and remain on furlough for the rest of their usual hours.

To qualify for furlough pay from July there is the added criteria that the employee should have been furloughed for at least three weeks between the 1st March and 30th June.  In July the employer can still claim employers pension and National Insurance, but the calculations have moved back to the original proposals prior to 20th April.

Announcements have also been made that from 1st August employer’s National Insurance and Pension can no longer be reclaimed, and the grant will be reduced from 80% from September.  The term minimum furlough pay has also been used, probably in anticipation of when employees are to be furloughed beyond September the employer will need to contribute.

The requirement to keep good records has been noted again, but also HMRC have added some reassurance:

“Choose the calculation you think best fits the way your employee is paid. For example, if you pay your employee a fixed regular salary, use the calculation for fixed pay amounts. HMRC will not decline or seek repayment of any grant based solely on the particular choice of pay calculation, as long as a reasonable choice of approach is made.”

The Calculations from 1st July

(as anticipated from the information provided on 12th June!)
This is subject to change, and last time everything changed in the week that the claim portal went live, however this time there is far more detail and examples have been provided.

For fixed salaried employees that are not using the flexible return to work you can use the salary and multiply by 80% to get the furlough grant amount.  If greater than the monthly or weekly caps then the grant amount is the cap.

Grant amount / the number of days in the month = Daily furlough pay

Daily furlough pay x number of days furloughed = furlough grant

Where the pay varies you can use the corresponding period last year or an average from last tax year.  Using the previous period can be complex where the periods do not align exactly, and we would suggest caution if you chose to do this.   There are examples available from the Government’s website as noted above