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Budget

National Minimum Wage April 2020

The National Minimum Wage April 2020

Although there is a chance there will be some changes announced on March 11th the National Minimum Wage rates have already been confirmed.  These rates apply to work after the 6th April and are an increase on the previous year of around 6%, although some age ranges are a little above and below this.

Minimum Wage Rates from 6th April 2020

Employee Age Range

Rate

Aged 25 and over (National Living Wage) £8.72
Aged 21 – 24 £8.20
Aged 18 – 20 £6.45
Under 18 £4.55
Apprentice Rate £4.15

 

The minimum wage applies to workers in the UK, and takes into account the basic pay or salary as well as other payments or deductions.  Salaried staff are also considered for the minimum wage, it is not just hourly paid workers.

National Minimum Wage calculations are not always straightforward, and there are some further notes available here.

To find out more information see here

Employment Allowance April 2020

Employment Allowance April 2020

The Employment Allowance is £3000 that can be offset against an employer’s NICs (National Insurance Contributions).  There are changes arriving this April and there are a few more details now available.

Eligibility for Employment Allowance

Eligibility is now a little more involved to determine; there is a company size threshold then other questions that need to be answered each tax year.

  1. Some exclusions remain the same, such as single director companies and public bodies.
  2. The employer’s (secondary) Class 1 NICS liability in the previous tax year must be less than £100 000. If greater the employment allowance cannot be claimed.  This £100 000 threshold is also applied to groups and connected PAYE schemes, so the combined total needs to be measured.
  3. If you have workers within IR35 you cannot offset their NI liability against Employment Allowance, but equally you do not need to count their NI towards the £100 000 threshold.
  4. If there are connected PAYE schemes, but the combined total is less than £100 000, then the Employment Allowance can still only be used against a single PAYE reference. It is up to the connected PAYEs to nominate the particular scheme.
  5. De minimis State aid rules: these rules will apply if the organisation is engaged in economic activity, so providing goods or services to the market, and most companies will fall into this bracket. You cannot claim Employment Allowance if this would mean exceeding the De minimis State aid thresholds for a particular business sector.

Claim the Employment Allowance each Tax Year

The majority of small business should be able to continue to claim the allowance, but there is now more work to do at the beginning of the new tax year.

At the start of the tax year, as well as determining eligibility, if the business is claiming the employment allowance you will need to declare the business sector, choosing from one of the following options

  1. State Aid Rules do not apply
  2. Primary Production of Agriculture Products
  3. Fisheries and Aquaculture Sector
  4. Road Freight Transport Sector
  5. Other, Industrial

For further guidance see here

Within IR35 Contractors April 2020

What is ‘Within IR35 Contractors’ and the changes in April 2020?

The IR35 legislation is aimed at ensuring contractors pay the same tax and National Insurance as an employee in an equivalent position.  New rules come in from April 2020 that will affect private companies classed as medium sized or larger.  The new rules will not be applied retrospectively.

The IR35 legislation places responsibility on the employer, not the contractor, for the reporting, collection and payment of tax and National Insurance.  The employer is also responsible for determining if the contractor falls within the IR35 rules.

Who does it apply to?

Small employers are exempt.  Small employers should meet two of the following conditions:

  • Have less than 50 employees
  • A turnover of less than £10.2million
  • A balance sheet total of less than £5.1million

There are additional rules where companies fall under the group rules, and simplified rules for certain other companies with a turnover of greater than £10.2million.

For medium and large enterprises the new rules will be applied.  The employer not the contractor decides if the work falls within IR35 rules, and is then responsible for reporting and paying the tax and National Insurance.

What contractors fall within IR35?

Employers must take reasonable care when determining the status of a worker, and there is a tool available from HMRC to assist with the test – CEST (Check Employment Status for Tax).  Employers should record the results of the CEST assessment as HMRC have said they will not hold records.

The CEST assessment is based upon a true agreement between parties, so if a contract or agreement is considered as contrived and not reflecting the true nature of work HMRC will disregard the CEST result.

Once a worker has been determined to be within IR35 they need to be reported via RTI.  This will mean through a payroll, but there is an important distinction between a PAYE employee and a contractor within IR35.

What do we need to do about contractors who fall within IR35?

How employers deal with IR35 will depend on individual circumstances.  For many a separate payroll with separate PAYE references will be simplest, but if there are only one or two temporary workers, including them within the normal payroll may be more straightforward.  Intermediary companies will also have to deal with IR35.

The RTI requirement is a reporting issue, as it is deemed employment that is reported and used for the tax and NI calculation.  This is unlikely to be the same as the invoiced amount from the contractor.  HMRC has guidance on how to calculate deemed earnings, but these are also changing in April.  Again it is important to understand the distinction between a contractor within IR35 and an employee, although both could potentially be reported through the same payroll.

There are some other differences between the contractor within IR35 and an employee on Pay as You Earn.  There are no student loan payments, holiday pay, statutory payments or auto-enrolment duties for instance.  Employment Allowance cannot be offset against NI from deemed employment, although Apprenticeship Levy is counted.  For these reasons a separate payroll to the PAYE payroll may be much easier to administer.

Further details will follow, but at the moment there is still a lot of uncertainty within companies of how exactly they will remain compliant with the new regulations.  There is further guidance available from here.

National Minimum Wage (NMW) Rates 2019

National Minimum Wage 2019

The National Minimum Wage (NMW) rates increase in April, and this year they are increasing by around 4% on average.

National Minimum Wage Rates 2019

Criteria

Rate

Aged 25 and Over (National Living Wage) £8.21
Aged 21 – 24 £7.70
Aged 18 – 20 £6.15
Under 18 £4.35
Apprentice Rate £3.90

 

These rates are proposed each year by the Low Pay Commission.  The government would then accept the proposals and add them to the budget for the next tax year, where HMRC then has the responsibility for enforcing the law.

There is also the voluntary organisation the Living Wage Foundation, who propose wage rates based upon the cost of living which are generally higher than the HMRC minimums.  The Living Wage Foundation also applies a weighting for living in London where costs are higher.

The minimum wage applies to workers in the UK, and takes into account the basic pay or salary as well as other payments or deductions.  Salaried staff are also considered for the minimum wage, it is not just hourly paid workers.

Examples for salaried staff

32 year old salaried worker, working 37 hours per week:  £1316.34 per month

37 x 52 = 1924 hours per year

Minimum salary would equal = 1924 x £8.21 = £15 796.04 pa

22 year old salaried worker, working 40 hours per week:  £1334.67 per month

40 x 52 = 2080 hours per year

Minimum salary would equal = 2080 x £7.70 = £16 016.00 pa

(These are minimums and care would still be need to make sure the NMW requirements were met in any 12 week period – see below)

National Minimum Wage Calculations

National minimum wage pay is not necessarily the same as gross pay, taxable pay or NICable pay however, and can get complicated where pay structures are not straightforward.

If workers receive bonuses or commissions then a 12 week average could be used to check the worker is receiving at least the correct hourly rate.  For this you would divide the total pay received by the total hours worked, which would then give an average hourly rate.

Care needs to be taken with salary sacrifice deductions, as these will reduce the pay for NMW calculations.  Common salary sacrifice arrangements include pensions, childcare vouchers and cycle to work schemes.  But there are other arrangements too.

Deductions for things like uniform can also be used to reduce the pay for NMW calculations, so employers do need to check they comply as the fines can be high if they fail in their obligations.  If a deduction can be shown to benefit the employer then it may well reduce the NMW, and advice should be taken.

If an employee feels they have been paid below the NMW their first course of action is to discuss this with their employer and see if they can find a solution.  ACAS offer an early conciliation service if a dispute between an employee and employer is not quickly resolved, and there is also the HMRC enforcement process.

Summary

In a simple pay structure it is very straightforward to check that the hourly rate is greater than the NMW rates, but where there may be deductions or variable hours it can get more complicated.  April is a good opportunity for employers to check the pay rates they have in place and adjust as needed.

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

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.