Payroll Outsourcing

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



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.


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.

Car and Fuel Benefits through Payroll

Car and Fuel Benefits through Payroll

If a company provides a car or fuel for private use then the employee is receiving a benefit, and this benefit needs to be reported to HMRC either through a P11D or via the payroll.  Reporting a car either through a P11D or via payroll is not completely straightforward and care does need to be taken.

Payroll the Car and Fuel Benefits

The advantage of processing the car and fuel benefits through payroll is that there are no P11Ds to complete and pro rata calculations are potentially more straightforward.

The employee tax code should increase, as the tax on account portion is removed, but this does not always happen straightaway.  There may also be an initial increase in tax on the payslips if an employee owes underpaid tax from a previous year.  For these reasons there can an increase in work for the HR and finance teams when a company first launched with benefits through the payroll.

Fuel benefit can be reduced or removed if an employee pays for their own private fuel.  The employee could just buy their own private fuel, but you would potentially need to be able to prove the employee has covered the full cost of their private miles

HMRC has published Advisory Fuel Rates that can be used, and where used properly there would be no benefit to report to HMRC.  Some care needs to be taken, and there are different rates for business miles in private vehicles and private miles in company cars where there is company fuel for instance.

Changes for April 2019

There is a supplement for diesel cars, but there is an exemption available for cars manufactured after September 2018.  Cars that meet the lower levels of Nitrogen Oxide (NOx) emissions permitted with the Euro standard 6d, will qualify for the exemption.

At the moment there are two categories of fuel, so diesel and other, but from April there will be the third – Diesel cars meeting Euro standard 6d.


If you do not currently process benefits through the payroll you need to register with HMRC in the tax year prior, so register now if you wish to start in April.  For help with P11Ds see here.

A Brief Overview of Pensions

An Overview of Pensions

Pensions seem to cause more issues and confusion within payroll than they should.  We will attempt to simplify and demystify their treatment by providing a brief overview of pensions, focusing on how they are managed within payroll as well as touching on auto-enrolment.

The Tax Treatment of Pensions

There are only three ways a pension can be dealt with for tax purposes:

  1. Tax Relief at Source. Here the pension is deducted from the net pay, with tax relief at basic rate reclaimed by the pension provider. The gross pay is not affected, and National Insurance Contributions are made as usual.
  2. Deducted under a net pay arrangement. This is an unhelpful term, but is referring to where the deductions are made before tax, and sometimes referred to as ‘gross for tax’ deductions. Again total gross pay is not affected, and NICs calculated as usual.
  3. Salary Sacrifice. The employee gives up part of their salary in exchange for a benefit, in this case a pension contribution. Gross pay and NICs will be reduced.

The impact of the tax treatment

  1. Tax Relief at Source. The employee will receive tax relief, so a top up to their net contribution, at the basic rate at the pension provider, even if they do not pay tax. This method is considered fairer to lower paid workers, but higher rate earners can still claim additional tax relief via their tax return.
    The other note with this method is that a contribution of 3% against the gross will actually be seen as a 2.4% contribution on the payslip, with the rest reclaimed as tax relief by the pension provider to bring the total back to the 3% (current basic rate tax at 20%).
  1. Deducted under a net pay arrangement. The employee receives full immediate tax relief on their contributions, and so higher rate tax payers do not need to make an additional claim via their tax return. The amount of taxable pay is also reduced, which higher paid employees may find useful if they are approaching thresholds. Employees paid below the tax threshold will not receive tax relief.
  1. Salary Sacrifice. These schemes have become more popular since the introduction of auto-enrolment pensions but they are the most complex. The employee gives up some of their salary, so now the whole contribution is from the employer.  For this reason salary sacrifice pensions do not even need to be processed through payroll, although it is more usual to do so.  Full tax relief is gained immediately on the contribution as well as reducing the employee and employer NICs.
    Care must be taken that the reduced gross pay does not fall below the National Minimum Wage rates, and there are also implications with statutory absence payments as well as other considerations.

The pension calculation basis

Pensions could also be divided in two, as to whether they are based on pensionable pay types or banded earnings.  Since the introduction of auto-enrolment Qualifying Earnings has become the most common form of banded earnings, and probably the most common basis for pension calculations.

  1. Pensionable Pay.  Individual elements of an employee’s gross pay may be subject to pension calculations, such as salary only.  Sometimes it is all pay, or total gross pay, but some care needs to be taken, as often the intention is all pay subject to National Insurance, so that payments such as business expenses or mileage would be excluded.
    For automatic enrolment it is possible to use pensionable pay but the basis needs to be self-certified, usually using one of the predefined sets from The Pensions Regulator.
  1. Banded Earnings.  Qualifying earnings is a band of earnings set by The Pensions Regulator, and is currently the band of earnings between the lower and upper earnings limits for National Insurance.  It is possible to have banding other than qualifying earnings, but this now rarely seen.

A brief overview of Pensions?

So three types of treatment for tax, and two for the basis of the contribution.  Five items to consider for a basic pension set up in payroll.

Accurate and On Time Reporting of Payroll Information

Accurate and on Time Reporting of Payroll Information

In the latest Employers Bulletin (August) published by HMRC there are several sections devoted to RTI submissions and including for new starters.  HMRC again stress the need for accurate and on time reporting of payroll information.

What is RTI?

RTI is possibly the most significant change ever made to Pay As You Earn (PAYE).  RTI, or Real Time Information, is a method of reporting payroll submissions to HMRC and is aiming to make this process more efficient and responsive.

RTI is made up of two parts, a full payment submission, or FPS, and an employer payment summary, or EPS.

The FPS submission contains information about payments and deductions to employees, and must be made to HMRC on or before pay day.  An EPS contains company information for items such as SMP, Employment Allowance or Apprenticeship Levy.  The EPS must arrive with HMRC by the 19th of the following month.

What has changed?

Within the bulletin there are no major changes announced for RTI submissions, but they do have some reminders and guidelines.  The payroll information must be reported accurately and on time, and your organisation faces penalties if you fail with this.

HMRC have said they will not automatically impose a penalty, but will be following a risk based approach for late filing penalties as for last tax year.  At the same time they have requested that people do not ignore the automatic warning messages sent out.

What is needed for new starters?

New starter information is determined to some extent by your particular organisation’s needs.  If you do not have an electronic payslip portal, then your payroll does not need an employee email address for instance.  Date of birth is probably essential, as so much within payroll can now be affected by this.

In this month’s bulletin the interesting highlight is regarding the employee postcode.  This must be accurate as this is one of the fields HMRC use to identify the employee.  If this is inaccurate as well as issues with HMRC, there can also be ramifications with the Department for Work and Pensions.

What is the significance?

There may be no changes, and these are all just timely reminders from HMRC to take care with your payroll.  But, there may be changes with the speed in which tax codes are issued, and faster changes in benefits, and inaccurate submissions will make errors far more likely.  Remember the announcement last summer of dynamic PAYE tax coding, and also the changes in treatment of transferred employees in April 2017 resulting in widespread Employee Duplication.

In Summary

A new employee should double check the information they provide, leaving fields blank is preferable to inaccurate information.  This, together with some care with the payroll process, should help ensure compliance with the HMRC request for accurate and on time payroll submissions.

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.

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 –


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


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.