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2018 Budget

2018 Budget

There are a few changes announced that will affect the payroll from April 2019.  Some of these were already known, and some confirmed or changed on Monday.  The following is a summary of some of the changes that will affect payroll from April:

Minimum Wage Rates are to increase from April

Age 2019 2018
25 and over (National Living Wage) £8.21 £7.83
21 – 24 £7.70 £7.38
18 – 20 £6.15 £5.90
Under 18 £4.34 £4.20
Apprentice Rate £3.90 £3.70

 

Tax allowances to increase ahead of schedule

The Personal Allowance increases to £12 500, and the High Rate Tax threshold to £50 000.

This means that the Basic Rate is payable on the first £1 – £37 500 above the Personal Tax Threshold, Higher Rate on £37 501 – £150 000, and Additional Rate over £150 000

The rates remain the same at 20%, 40% and 45%

The Income limit for personal allowance remains the same at £100 000, above this the personal allowance starts to be reduced.

Off Payroll Working

Off payroll working – IR35.  Responsibility will move from individuals to the organisation / agency.  Although there was a possibility of these changes being brought in for 2019 the delay to 2020 has been confirmed, and additionally that the plan is to make small organisations exempt.  There will be further announcements as we approach April 2020.

Employment Allowance

The Employment Allowance of £3000 per year will be restricted to companies with an employer’s National Insurance bill lower than £100 000.  The £3000 per year remains unchanged.

National Insurance

There are fairly minor changes to the class 1 National Insurance Contributions:

Weekly Lower Earnings Limit £118 (to be eligible for statutory benefits)

Weekly Primary and Secondary thresholds both rise to £166 (employees and employers start to pay National Insurance)

Weekly Upper Earnings Limit, Upper Secondary Threshold, and Apprentice Upper Secondary threshold rises to £962

The rates remain the same of 12% and 2% for employees and 13.8% for employers.  The exemptions for apprentices and the under 21s are also unchanged.

Apprenticeship Levy

Apprenticeship Levy remains the same at 0.5% and with a £15 000 allowance.

 

For further details on the Budget 2018:

Budget 2018

Rates and Thresholds for April 2019

National Minimum Wage

Student Loans

Student Loans

There are currently two student loan plan types payable through the payroll, and which one depends upon when the first year of studies were started.  Plan 2 is where the first year of studies were started after 1st September 2012, and Plan 1 is where the studies were started before this.

The interest rates charged on each loan type are also different, with 1.75% on plan 1 and RPI (currently 3.3%) to RPI + 3% for Plan 2.  For more information on how much is repaid see here.

For employers you need to know when a student loan is repayable through the payroll, and where plan type is not known the default is Plan 1.  HMRC have said they will always issue a student loan start notice together with the plan type where a new employee should be repaying the loan.

We should also mention that some employees may have other student loans taken before 1998 that are not normally taken through payroll, and are based on a fixed term.

Thresholds for repayments increase in April

From April 2019 the threshold for Plan 1 will be increased by £605 to £18 935 pa, and for Plan 2 by £725 to £25 725pa.  These equate to around £1575 and £2140 per month.

Plan 1 and Plan 2 are both paid back at a rate of 9% on earnings above these thresholds.

Post Graduate Loan repayments starting April 2019

Post graduate loans are a new type of student loan that will first become eligible for repayment from April 2019.  There is currently only one type of Post Graduate Loan as far as payroll is concerned, and hopefully this will remain so.

The interest is calculated in a similar fashion to Plan 2, so RPI + 3%, and updated each September.

Repayments are at 6% and paid above a threshold of £21 000pa, or £1750 per month.

Multiple Loans

It is possible to have multiple loans and pay up to 15% of student loan repayment, this is where an employee has a Plan 1 and/or Plan 2 and a Post Graduate Loan.  The different thresholds would still apply.

Summary

Student Loans are not as straightforward as they could be, and there are other aspects not covered here that could catch people out in payroll, such as Attachment of Earnings Orders.  Employee questions about student loans are not uncommon, but the answers are not always simple to find.

If you want more general information on student loans, or your employees have further questions, you can follow this link.

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.

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

PAYE Reconciliation

HMRC has just announce they are starting their reconcialtion process for the PAYE system for the 2014/15 tax year, and expect to be completed by October. PAYE (Pay As You Earn) tax is that which is collected through the payroll, and is effected by the tax code.

 

There were issues last year but HMRC seems confident that the vast majority of PAYE tax payers will be correct and no action will need to be taken. If tax was overpaid a P800 notice will be issued, followed by a cheque within 2 weeks. If tax was underpaid then P800 notices will still be issued but you will be offered a few options which will also depend on how much is owed.

 

There is further guidance on what happens if a P800 notice is issued here, but as HMRC have said, very few people will receive them!

AE Pensions Simplified

We are about to start becoming very busy with new companies staging for auto-enrolment, but The Pension Regulator has made life a little more straightforward. The new ‘step by step’ guide seems to have been well thought out, and although there may well be pitfalls it seems a much more readable than some of the lengthy documents previously produced.

 

The single page check list is very helpful, and a simple way of seeing what is required. There is the proviso of seeking ‘legal or other specialist advice’ at the base, but we view this as a positive and constructive approach from The Pension Regulator.

 

What has been less publicised is the reduced correspondence burden. There are less letters to be handed to employees, and although there are still duties, one of the changes is that it appears there is only the requirement to contact an employee the first time their status changes, rather than repeated correspondence. Also several documents have been combined.

 

The Pension Regulator is clear that giving more information than the statutory minimum is still acceptable, if companies already have a system in place. The link to the detailed guidance document can be compared with the step by step guide, and shows that The Pension Regulator is trying to simplify and explain. Long may this continue.

Be Cautious with Holiday Pay

There have been various opinions on what constitutes holiday pay, and some companies have changed their policies already. We did suggest caution as there is no definitive position yet, and companies need to be careful they do not implement policies that may need to be rewritten within months. On May 5th it was announced that British Gas were appealing in the ‘Lock case’. This is one of the cases referring to commission payments that is regularly referenced, and this appeal will only add to the ongoing uncertainty with holiday payments.

 

We do not have the answer here, we have many strategies that companies have used following advice from their HR departments or advisors, but we cannot advise on what the best way forward is at the moment, or in six months’ time. Following the election maybe we will get a dynamic and conclusive answer?

Marriage Allowance

The start of the new tax year has brought a few changes, one of which is the ability to transfer tax allowance between spouses or civil partners. This is not terribly straightforward and at the moment you are still having to ‘register an interest’.

 

If an employee manages to successfully transfer part of their allowance, both parties will receive a new tax code and we expect a P6 tax notification to be issued. The maximum that can be transferred is £1060 for this tax year and the income of the person donating the tax allowance should generally be less than £10 600pa.

 

For further details you can visit the government website here.

End of the Tax Year

We are now drawing to a close the 2014 /15 tax year. This is a very busy time of year for us as we complete year end procedures and then move all the payrolls through to the new tax year. There are several changes for April 2015, as have been mentioned previously, and we have to be prepared to meet these.

 

The P60s will be produced once all other procedures are successfully completed, and will generally start to be sent out at the beginning of April. All employees employed on the 5th April should have received their P60 by the 31st May.

Pension Payment Types

Pensions can get very complicated, but if you just look at each piece separately it is possible to gain an understanding. One common question is regarding net, gross for tax and salary exchange schemes.

 

  • A net scheme is deducted after tax and NI, the tax is then reclaimed at the basic rate by the pension company.
  • A gross for tax scheme is deducted before tax but after NI.
  • A salary exchange is a benefit resulting in a lower gross salary, so before both tax and NI.

 

No one scheme will suit every employee and every company and you will need to seek further advice when choosing a pension.