Payroll in 2016/17
The number of changes introduced by the government is growing every year and companies are in a race to keep up with these in order to remain compliant and to protect themselves against fines and penalties. In this article we will try to summarise the forthcoming changes.
Automatic enrolment (AE) started in October 2012 for bigger employers. On a positive note, it has been commented that the opt-outs are low, and the Chancellor declared in his Autumn Statement that with 5.4 million workers already enrolled, the number of people saving for their pension is now at its highest since 1997. The situation is not guaranteed to continue, though, as tax treatment of pensions or tax credits may still change (after 2018/19).
SMEs have been auto-enrolling in huge numbers from January 2016 and this will continue into 2017. The issue can no longer be avoided nor ignored.
Although there is good guidance material available, the volume of it shows how complicated AE is and how much additional work is required from employers. WSM can assist and support you with your auto-enrolment process.
The basic obligations to remember are:
- To check the staging date;
- To nominate contact names with The Pension Regulator (TPR) – WSM can be your secondary contact;
- To set up a qualifying pension scheme;
- To assess your workers;
- To provide your workers with pension correspondence;
- To automatically enrol all eligible workers (non-eligible/entitled can opt-in/join in), and
- To submit the employer declaration of compliance.
The minimum rates for pension contributions confirmed up to 2018/19 are:
|Up to September 2017||1%||2%||2%|
|October 2017 – September 2018||2%||3%||5%|
|From October 2018 onwards||3%||5%||8%|
You must also be aware of the tapered annual pension allowance from April 2016. This applies to employees with threshold income over £110,000 and adjusted income of over £150,000, where pension contributions will be capped according to the level of earnings (including employment and other income such as rental income, dividends, less certain allowances and reliefs).
Employers will need to consult their employees to identify any staff to whom this will apply and where appropriate inform them of the new tapered allowance, amend contracts of employment, and potentially limit the total pension contributions to £10,000 p.a.
The threshold income does not include pension contributions (employee’s and employer’s) made to defined contributions (DC) or accrual within a defined benefit (DB) pension plan. The contributions made under salary sacrifice on or after 9th July 2015 will also need to be included.
The ‘adjusted income’ is the total of employment and other income and pension contributions added; the annual allowance will be reduced £1 for every £2 by which the adjusted income exceeds £150,000, up to a maximum reduction of £30,000, as follows:
|Individual’s adjusted income||Annual allowance|
The carry forward of unused tapered annual allowances will continue to be available, subject to the unused tapered annual allowance.
New legislation has been introduced to align the pension input period with the tax year. All pension input periods which were open on 8th July 2015 were closed on that date, with the next pension input period running from 9th July 2015 to 5th April 2016. All subsequent pension input periods will be concurrent with the tax year from 2016/2017 onwards.
Payrolling of benefits
From April 2016, employers can choose to account for taxable benefits payable to their employees through their payroll. You only need to register once with HMRC; the deadline to register for this with HMRC for 2016/17 is 5th April 2016, and payrolling benefits must continue through the full financial year. Employers cannot stop payrolling benefits and deregister until the end of the tax year.
To avoid double taxation, HMRC will amend the employees’ tax codes to remove any benefits that are to be payrolled.
All benefits can be payrolled, with the exception of: vouchers and credit cards, living accommodation and interest free/low interest beneficial loans.
Payrolling benefits will remove P11D reporting but an obligation for P11D(b) form filing and payment of class 1A national insurance on the payrolled benefits will remain. Individuals will have to declare the payrolled benefits in their tax returns, if these are submitted.
Although the process of payrolling benefits has been in place in many European countries for years and seems to work well, HMRC have not implemented a full European model and many employers and agents in the UK are still doubtful as to the benefits.
End of Dispensation
From April 2016 dispensation claims are to be abolished. Instead, under the new legislation a statutory exemption for reimbursed expenses applies; which means that where an employee is entitled to a fully matching tax deduction, you will no longer need to apply for a dispensation, or report those expenses on form P11D. All other non-allowable expenses will be subject to tax and NIC, as they are now. Employees will still be able to claim tax relief from HMRC in respect of non-reimbursed expenses.
The new exemption does not apply to expenses or benefits in kind provided under a relevant salary sacrifice agreement. Any expenses payments paid to employees under this arrangement will need to be paid after deducting tax and NIC.
Employers are required to keep records and to operate a system to check that employees are incurring – and paying – amounts in respect of scale rates and expenses payments, and that a deduction would be allowed for those expenses.
The benchmark rates will continue to be available under the new exemption and are set through regulation. Any existing agreement on scale rates and bespoke rates will have to be re-applied for. These agreed rates can be used for up to five years
Shared Parental Leave
New rights have come into effect offering UK parents to share their leave in a more flexible way. The aim of these rights is to enable mothers to keep more in touch with their professional life or studies and allow fathers to get more involved with their children and housework, the ideas so widely promoted in Sweden.
Employees may be able to get Shared Parental Leave (SPL) and Statutory Shared Parental Pay (ShPP) if their baby was born after 5 April 2015 or adopted after that date. The eligibility is based on the length of service and earnings in a similar way as statutory maternity leave and pay.
The basic rules of shared parental leave are:
- SPL is 50 weeks of leave, out of which 37 weeks is paid and 13 weeks unpaid leave;
- SPL must be taken in the 12 months following birth or adoption. Employees can take SPL in up to 3 separate blocks. They can also share the leave with their partner. Parents can choose how much of the SPL each of them will take. Also, a mother can take her leave as shared parental leave – even if the father takes none of it – rather than statutory maternity leave;
- SPL is for couples (including same-sex couples, co-habiting couples, and couples bringing up a child together even if the baby is from a previous relationship), rather than single parents;
- ShPP is paid at same rate over 37 weeks – £139.58 a week or 90% of an employee’s average earnings, whichever is lower (unlike SMP, where first six weeks are paid as 90% of their average earnings and remaining 33 weeks at statutory rate £139.58);
- Statutory maternity leave and pay, ordinary paternity leave, adoption leave and pay will continue as before, and run along SPL
SPL provides great flexibility but financially ShPP is less of a benefit than traditional SMP. Parents need to decide what is more important and more advantageous for them at the time.
There have been some cases decided by Employment Appeals Tribunal (EAT) and the Court of Justice of the European Union (CJEU) over the last twelve months regarding holiday pay and commission; however many businesses are still confused about additional payments that employees may be entitled to receive.
The general guidance points are:
- Guaranteed and normal non-guaranteed overtime should be considered when calculating a worker’s statutory holiday pay entitlement but there is currently no definitive case law that suggests voluntary overtime needs to be taken into account.
- Commission should be factored into statutory holiday pay calculations.
- Work-related travel may need to be factored into statutory holiday pay calculations.
- A worker’s entitlement to holiday pay will continue to accrue during sick leave.
- There are different rules for calculating holiday pay depending on the working patterns
- Workers must take their statutory paid annual leave allowance and can only be ‘paid in lieu‘ for this when their employment ends.
Calculating holiday pay for different working patterns
No matter the working pattern, a worker should still receive holiday pay based on a ‘week’s normal remuneration’. This usually means their weekly wage but may include allowances or similar payments. Some of these payments might include the situations described earlier on this page, such as commission.
- For workers with fixed working hours: If a worker’s working hours do not vary, holiday pay would be a week’s normal remuneration.
- For workers with no normal working hours: The holiday pay would still be a week’s normal remuneration but the week’s pay is usually calculated by working out the average pay received over the previous 12 weeks in which they were paid.
- For workers whose normal working hours vary each week, then the average weekly pay is usually calculated by working out the average number of hours worked in the previous 12 weeks at their average hourly rate.
From April 2016, the relaxation period ends and HMRC will charge automatic penalties on any late submissions under the real time information (RTI).
The charges depend on how many employees you have:
|Number of employees||Monthly penalty|
|1 to 9||£100|
|10 to 49||£200|
|50 to 249||£300|
|250 or more||£400|
If you are over 3 months late you can be charged an additional penalty of 5% of the PAYE/NIC that you should have reported.
If you do not submit your FPS on time or tell HMRC by sending an EPS that you have not paid any employees, they may raise a specified charge – an estimate of how much HMRC thinks you should pay. This is based on your previous PAYE payment and filing history.
A specified charge does not replace the need for you to send your FPS or EPS. Only the submission of the missing FPS or EPS for each month will replace the charge(s) with the amount that is due for each month.
New Childcare Vouchers
At present, the Employer Supported Childcare scheme allows working parents, who are not self-employed, to claim support to pay for registered childminders. The vouchers, worth up to £243 a month, can be bought by each parent from their salary before tax. For basic rate taxpayers, this can mean an annual saving of £930.
The government announced its plan to change the existing scheme with a new top-up payment to take effect from 2017. Under the new scheme, working families will be able to claim government support worth 20p for every £1 they spend on childcare up to a limit of £10,000. It will be available for single parents with a salary of up to £150,000 or couples with a combined salary of up to £300,000, including self-employed people.
However, families where one parent stays at home will not be eligible. The new Tax-Free Childcare scheme will operate alongside the existing Working Tax Credits, aimed at the lowest-income households, while the voucher scheme will close to new entrants and be slowly wound down.
From April 2014, every business, charity and community amateur sports club has been entitled to an annual ’employment allowance’ of £2,000 to reduce their liability for Class 1 secondary NICs. The government has announced it will increase the Employment Allowance to £3,000 a year from April 2016.
To ensure that the NICs employment allowance is focused on businesses and charities which support employment, companies where the director is the sole employee will no longer be able to claim the employment allowance from April 2016.
Employers that were eligible in 2015/16 but cease to be eligible in 2016/17 will have to notify HMRC of this ineligibility via the Employment Payment Summary (EPS).
Apprentices under the age of 25
From April 2016, if you employ an apprentice under the age of 25, you may no longer have to pay employer class 1 national insurance on their earnings up to the new Apprentice Upper Secondary Threshold, which will be £43,000 a year this coming year.
To qualify, an apprentice must be under 25 years old, and working towards an apprenticeship in the UK which follows a government-approved framework or standard.
To apply the relief, you must hold either a written agreement between the employer, the apprentice and the training provider, or evidence of government funding for the apprenticeship.
Abolition of Contracting Out
With effect from 6 April 2016, the Government intends to replace the current state pension system with a flat rate single-tier pension. A key consequence of this is that employers will cease to have the option to contract their employees out of the additional state pension on a salary-related basis. Defined benefit contracting-out will therefore also cease to exist from the same date.
Contracted out NI letters and reduced rates will cease, and standard tables will apply, which means companies will have to pay a full rate of NI contributions.
From April 2016, there will be two student loan plan types which will be known as Plan 1 and Plan 2 to allow for different rates of loans pre- and post-September 2012. Each plan will have a different threshold. You will need to deduct student loan repayments using the appropriate plan type.
Any student loan notices issued from now on will specify which plan is applicable: Plan 1 with a threshold of £17,497 (including employees already repaying student loans) and Plan 2 with a threshold of £21,000 (for any employees with new student loans). HMRC will issue new notices to specify which plan is applicable, when necessary.
The rate of deductions continues to be at 9%.
Scottish rate of Income Tax
The Scottish Government announced on 16 December 2015 their proposed Scottish Rate at 10%. This would mean that the Scottish taxpayers will pay 10% tax to the Scottish Government and the remainder to the UK government, so overall they will currently pay tax at the same level as taxpayers elsewhere in the UK.
Although the overall rate is the same, employers must still make sure that they apply S codes, which identify those who are Scottish taxpayers, if received from HMRC.