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Bob L

Budget 2016

Salary Sacrifice
Tax Allowances
Termination Payments
Employment Intermediaries
Dividend Tax
Other notices

There were several announcements made in Budget 2016, including rates for April 2017.  Many of the more interesting items were not directly relating to payroll.

Salary Sacrifice was mentioned as predicted, but no immediate changes announced.  Pensions, Child Care and Cycle to Work schemes seem likely to continue to attract relief, but other schemes may be limited or stopped.

The tax allowances will remain as published.  What we did not previously include was that the higher rate limit will be raised to £43000 in April, from the current £42385.  The national insurance rates will also be the same as previously published.  For further details see here.

Termination payments are complicated, and with how they are dealt with for tax and National Insurance.  The government previously announced this was something they were looking at and now the first changes have been announced.  From April 2018 payments over £30000 will be subject to National Insurance as well as income tax.  There is also a further technical consultation planned.

Employment intermediaries are being challenged with changes in the tax relief for travel and subsistence.  Tax relief for home to work travel, and subsistence expenses, for workers engaged through an employment intermediary is to be removed from April.  This will bring them into line with employees, and may affect those employed by umbrella companies, personal service companies or recruitment agencies.

Dividend taxes are also changing, which will affect company directors.  Dividend Tax Credit is being abolished, and replaced with a £5000 a year Dividends Allowance.  Tax will be due on dividend income above the allowance at 7.5% for basic rate, 32.5% for higher rate, and 38.1% for additional rate tax payers.

Do not hire illegal workers, apart from the fines the government will also remove a year’s employment allowance.  This measure is planned to start in 2018.

The employment allowance is raising to £3000 per year this April, as we previously reported, but the rules are changing slightly with which companies are eligible.  Where a director is the sole employee, that company will no longer be eligible.  Guidance notes were expected this month.

The Minimum Wage will change in October 2016, which is as expected, with the rate for 21-24 year olds moving to £6.95 per hour.  What is a little more interesting is that the Minimum Wage and Living Wage cycles are to be brought into line, and both rates will be amended together from April 2017.

The statutory payments are not changing this April which is quite unusual.  So SMP, SSP rates etc will remain the same.  For more information on rates and thresholds see here.

Budget 2016, as with everything the Devil is in the Detail.

Payroll Changes for the April 2016 Tax Year Part 3

Payroll Changes for the April 2016 Tax Year part 3

Dispensations are to be replaced by Expenses Exemptions

The requirement for dispensations from HMRC for expenses are to be abolished. Under the original ruling, payments to employees for expenses should have been reported to HMRC on a P11D unless a dispensation was in place for that particular expense. From April 2016 all existing dispensations will no longer apply, and the concept of expense exemption is to be introduced.
A company will need to have systems in place to ensure employees are incurring and paying the expenses, and that a deduction would be allowed for these expenses. It is anticipated that examples of these systems will be produced by HMRC.
The company will need to be able to prove that these payments are only made to employees which would be eligible for a deduction, and that the employees are actually incurring an expense. More details will be produced, as there remains some complexity with scaled rates, benchmarks and bespoke rates.
There were some details available in the August 2015 Employer bulletin, and it is anticipated that more details will be produced as we move into the new tax year.

Benefits in Kind

The £8500 low income threshold for reporting benefits in kind has also been abolished, and the concept of trivial benefits introduced as part of the review of benefits and expenses. The benefits in kind that do not need to be reported are below £50 for an individual, and for directors and other office holders there is an annual cap of £300.
It is likely that further clarification and examples will be produced, but the aim is to reduce bureaucracy. For further details see here.

Employment Allowance

The £2000 employment allowance is expected to be raised to £3000 from April. Most private companies in the UK will qualify for this allowance and it is very simple to apply. It is likely that single director companies, where the director is the only employee, will no longer be eligible.

The Budget

The chancellor will be announcing the budget on Wednesday, which may bring fresh changes, so please take these posts as advanced warning of expected changes.

Payroll Changes for the April 2016 Tax Year Part 2

Payroll Changes for the April 2016 Tax Year Part 2

Although there may be surprises in the budget, HMRC are currently publishing thresholds, giving anticipated payroll changes for the April 2016 tax year among other things.

Basic tax free Allowance

This is expected to increase to £11 000 per year, not £10 800, which is £917 per month rather than the current £883.  The new tax code will be 1100L

Scottish Income Tax is also being introduced. The HMRC rate is decreased by 10%, and then the Scottish Rate of Income Tax will also be at 10% for this year. Employees subject to this tax will have an ‘S’ prefixed to the tax code, so the code may look like ‘S1100L’. See here for further details

The higher rate threshold will be on earnings from £32 001 to £150 000.

The National Insurance Thresholds

The National Insurance threshold changes are mixed for the next year. Some rates are changing and some remain the same. The rates at which employers start paying NICs for under 21s, and apprentices under 25, are also being increased slightly.

Lower Earnings Limit £486 per month
Primary Threshold
employees start NI contributions
£672 per Month
Secondary Threshold
employers start NI contributions
£676 per month
Upper Secondary Threshold £3583 per month (increased)
Apprentice Upper Secondary Threshold £3583 per month (increased)
Upper Earnings Limit £3583 per month (increased)

 

Contracted Out Pensions

Another change this year is contracted out rates for pensions are to be discontinued. This will affect employees with a National Insurance category D or N, and will mostly be those employed in the health, education or local government sectors.

This should not have a major impact, but there seems to be some variation with how employers are explaining the changes to their workforce.

 

These are the anticipated changes, please see later posts or our FAQs for the actual rates.  You can also see here for further details and updates.

Payroll Changes for the April 2016 Tax Year Part 1

Payroll Changes for the April 2016 Tax Year

There are several payroll changes for the April 2016 tax year that employers need to prepare for.  If you have workers on the minimum wage possibly the largest impact will be with the new National Living Wage.

The National Living Wage

The National Living wage is to come into force this April. This should not be confused with the “Living Wage” as published by the living wage foundation, see here for further details.   Employees that are 25 years of age or older, and not in an official apprenticeship scheme, will be entitled to a minimum of £7.20 per hour from April 2016.

Employees under the age of 25 are still entitled to at least the National Minimum Wage.

Guide to current 2015 Minimum Wage rates:

21 and over £6.70
18 – 20 £5.30
Under 18 £3.87
Apprentice
(aged 16 – 18, or the first year if 19 or over)
£3.30

The rates are usually updated every October.  For further details about the new National Living Wage see here or general minimum wage rates see here.

Beware if you have a salary sacrifice / exchange pension scheme.  The salary remaining after the pension exchange must still exceed the minimum wage rates.

 

Apprentice National Insurance Changes

From April 2016 there are changes to employer’s National Insurance Contributions for apprentices below the age of 25.

There will be no employer Class 1 National Insurance Contributions to pay on earning below the Apprentice Upper Secondary Threshold, which will be £43 000pa from April 2016.

Not all apprentice schemes will be eligible: the scheme must follow an approved UK government apprenticeship framework.

If the conditions are met then a new NI category H will be applied in most cases, and this is a development of the current positions for employees below the age of 21.  For foreign going mariners there will be NI category G.

The employee however, will continue to make National Insurance Contributions in the usual way.

For further guidance see here.

 

If you want to discuss any of these changes and how outsourcing to Payroll Options can help please contact us

Scottish Rate of Income Tax

Scottish rate of income tax

The Scotland Act 2012 gives the Scottish Parliament the power to set income tax rates – The Scottish Rate of Income Tax (SRIT).  This new tax rate will come into force in April 2016, and will continue to be administered by HMRC.

Scottish tax payers will still pay UK income tax, but the rates will be reduced by 10%, and the Scottish Parliament can set the SRIT annually starting from 0.  The initial SRIT will be 10%, meaning a basic rate tax payer will still pay an overall rate of 20% on taxable earnings, the same as the rest of the UK.  This was announced on the 16th December in the Draft Budget for 2016/17.

What this means for the 2016/17 tax year:

UK Income Tax Rate UK Reduced Rate SRIT  Overall Income Tax Rate for Scotland
Basic Rate 20% 10% 10% 20%
Higher Rate 40% 30% 10% 40%
Additional Rate 45% 35% 10% 45%

This may change before April, as it is only in the draft budget, but this would seem unlikely for the first year.

How will it be applied?

SRIT will only be paid by Scottish taxpayers, and HMRC will make this assessment based upon an employee’s main residence.  HMRC started sending letters to confirm addresses on the 2nd December 2015.

HMRC will issue tax codes for April 2016 that start with the letter ‘S’, which will flag the employee as a Scottish taxpayer.

Employers should not decide who is, and is not, eligible for SRIT, there is guidance available for employees that believe their tax code is incorrect.

What about Pensions?

For pensions with tax relief deducted at source, so the deduction is made from net pay, the pension companies have until April 2018 to have the IT systems in place to reclaim the tax at the correct rate, until then claims will continue to be at UK basic rate.

What will happen for Payroll Options Client?

This will have minimal impact on our clients; although there may be an increase in P6 & P9 tax notifications in the 2016/17 tax year.  Outsourcing your payroll solution to Payroll Options means that we will look after applying the codes, and as HMRC have taken responsibility for determining a taxpayer’s status, there should be very little additional work for employers.

Statutory Payment Penalties

Statutory Payment Penalties

Part of the reason many companies chose to outsource payroll provision is to have help with statutory payments.  These payments include SSP (Statutory Sick Pay), SMP (Statutory Maternity Pay) and SPP (Statutory Paternity Pay) but there are more.

HMRC have issued a reminder that they will always seek to issue a penalty if an employer fails in their duties with statutory pay.  If an entitlement to a Statutory Payment has been established, and the employer fails to meet their liability to pay, HMRC will take action.

The penalty could be up to the legal maximum of £3,000.  Although the exact penalty will vary case by case, HMRC charges will normally be in excess of the Statutory Payment the employer has failed to pay.

You can find more details here.

Keep Records

Part of the duties of the employer is to keep records of statutory payments.  This is good practice and should form part of your payroll solution.  As well providing records to potentially defend an HMRC action, failure to keep records can generate a penalty in itself.

Calculating Statutory Payments

Statutory Payments are not always straightforward.  For some types the employee could be eligible for payments as soon as they join your business, and others have complex eligibility criteria.  The current rates of pay also change, although usually just once per year.  The current rate for SSP is £88.45 per week for instance (tax year to April 2016).

If you want more guidance on statutory payments you can find it here

The Payroll Solution

As an employer you probably do not wish to know the rate for a 3 day worker entitled to one day’s SSP is £29.49, whereas for a five day worker it is £17.69 (for tax year to April 2016).  This is where payroll outsourcing comes in; provide the information and the people at payroll make the calculation.

Some statutory payments can be recovered, partially recovered or even an enhanced recovery.  Outsourcing the payroll to a bureau can simplify this process, as calculations and reductions to your HMRC bill will be made and reported automatically.

If you have any questions please contact us or visit the HMRC website.

Marriage Allowance

Marriage Allowance

HMRC would like companies to encourage their workers to apply for the new Marriage Allowance earlier in the tax year.  Your staff can still apply for a tax code change this tax year, but need to hurry.  The savings are processed through payroll, and will take little or no effort for the employer.

The Marriage Allowance allows a husband, wife or civil partner transfer £1060 of their personal tax allowance.  This tax year this would mean a saving of £212 for that person.  The application process is online and can be accessed here.  There is also an online calculator available where employees can see how much tax could be saved.

Who should apply?

There are three criteria that should be met before the application is started:

  1. both partners were born after the 6th April 1935
  2. the transferer income is £10 600 or less
  3. the transferee income is between £10600 and £42 385

This is current advice for the tax year ending April 2016, for the latest guidance go directly to HMRC.

How does it work?

HMRC will issue tax coding notices to both parties, and these will be issued to the employer in the form of a P6 tax coding notification.  The employer should not change the tax code through payroll based on an employee notification, but should wait for the coding instruction from HMRC.  Once the P6 arrives the tax code can be changed through the normal payroll process.

The transferer will receive an ‘N’ code, for example 954N, and the transferee an ‘M’ code, for example 1166M.  These tax codes will be used by your payroll service to alter the personal tax allowances and so enable the saving to be passed across.

There is no need for an employer to be aware of any of this, especially if they are using a payroll outsourcing company, but it may be helpful to raise awareness of this tax break in the work place.

 

HMRC Severe Weather Helpline

HMRC Severe Weather Helpline

HMRC have announced a telephone helpline to assist anyone affected by the recent severe weather.  You can find further details here.

0800 904 7900

The number is in addition to other HMRC helplines, and should be restricted to matters arising from the recent severe weather and floods.  The HMRC severe weather helpline should be view as a helpful and proactive step, and anyone affected by the weather that has concerns about tax or related matters should contact HMRC.

 

Specialist Veterinary Payroll

London Vet Show 2015 Report

Thank you to everyone that visited our stand at London Vet Show 2015, we were tucked away a little bit so well done for finding us.  We had great fun raising the profile of our specialist veterinary payroll services, met a lot of new people and handed out a lot of chocolate coins and post-it notes!

We are still working through all the details that we received, and from the competition we ran it is becoming very apparent that the vast majority of employees value accurate payroll solutions.

Congratulations to our competition winner – Geraldine of Fairfield Veterinary Centre, Hinckley.

Geraldine_FairfieldVets

She and the vets practice were delighted when the large hamper of chocolate was delivered.  Thank you to everyone that entered, we will get an acknowledgement out to you.

We knew before the show that our approach would benefit many vets practices, and although this was confirmed in the conversation we had, often there was a fear of change.  Our specialist veterinary payroll solution was well received, and a great many people approached with questions we were able to quickly answer.

We also noticed that people were surprised by what our standard outsourced payroll service actually consisted of, and were not aware that such a service existed.  They were also pleased that we had an insight to veterinary practice and did not need every small detail spelt out, and could make suggestions with how things could be better organised to save time within the veterinary practice.

We were surprised, and disappointed, with some practices tolerance for poor performance, as there were some shocking anecdotes.  There were issues both with in house payroll and outsourced payroll services.  Although we should view this as a great opportunity, it is always a shame when there have been unnecessary issues.

One recurring theme was auto-enrolment pensions, both with veterinary practices already staged and those staging in the next year.  This really should not be a major cause for concern, the process is not as painful as vets envisage and does not need to cost the earth.  We can support much of the administrative burden, with no intervention from the veterinary practice, and at no extra cost.  The pension pain is controllable!

HMRC warns of Phishing Scam

HMRC have released another warning about ‘phishing scams’.  The current scam is centred around the subject of complaints, and contains a malware attachment.

Phishing

This is the when fraudsters pretend to be somebody else in an attempt to gain access to personal information. Usually this is in the form of emails but can be in other ways such as social media posts. For more information see here.

Malware

This is malicious software that will attempt to be installed on your computer. Some malware could merely track your online activity but some could, for instance, gain your online bank details for criminals. There is a whole range of malware threats, and more can be seen here.

Self-Assessment Filing

The HMRC warning has been produced in the run up to the Self-Assessment Filing deadline. HMRC staff undertake mandatory training to identify potentially threatening emails, and they suggest individual business should look at their own systems and staff as well.

Tax Refunds

The email claiming to be notifying of a tax refund, with a link to click on, has been around for a while. Employees receiving a refund of tax, usually due to a tax code change, will generally receive this through the payroll, without any additional forms.

If an employee receives one of these emails they should forward it to the HMRC fraud department – phishing@hmrc.gsi.gov.uk.

Employers can always contact us for more information on what to do if an employee believes they have the wrong tax code, and what the likely consequences are.