Important Payroll Tax Changes Commencing from 6 April 2019

New Payslip Legislation

New legislation will come into force from 6 April 2019. New rules require all employers to provide payslips to all workers, showing hours worked on their payslips (where pay varies as a result of the amount of time they have worked).  There are some exclusions such as members of the armed forces or merchant seamen and women.

Where an employee’s pay varies depending on the number of hours they have worked this must be shown on their payslip.  However employees who are paid a set salary can remain as a fixed amount (although any overtime pay must be shown as hours).

Please see the below link for some more examples

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/764576/payslips-legislation-april-2019-additional-info-on-payslips.pdf

We advise you to review your own payroll and individual employment contracts to avoid any potential issues as shown in the example below.

Example

An employee is contracted to work 39 hours per week and it states in the contract they will be paid per calendar month, in 12 equal instalments which is 169 hours per month (39 x 52/12). The majority of cases like this could be fine, however there is risk of breaching National Minimum/Living Wage regulations if the employee is paid on or slightly above NMW/NLW.

Under NMW/NLW legislation, employers are required to demonstrate that they have paid employees at least the relevant minimum in the “pay reference period”.  In this case, that would be a month.  Therefore, if in the “5-week” months, employees have worked 195 hours but are only being paid for 169 and the amount that they are paid divided by 195 would equate to an hourly rate lower than their relevant NMW / NLW then this would be in breach of the regulations. Therefore, it is imperative that you review your employment contracts to satisfy that you are compliant. Please note this principle also applies to salaried employees.

Please also be aware if an employee thinks their payslip is not clear or they think they have not received a payslip they may bring this before an Employment Tribunal. It is therefore imperative that the correct information is provided to your payroll administrator, or in house team to allow them to produce a clear payslip.  If you haven’t already taken advantage of the Sage online payslip portal this may be the time to reconsider your processes and ensure you are fully compliant.

National Living Wage (NLW) and the National Minimum Wage (NMW)

From April 2019 the following hourly rates will apply:-

  • £8.21 (> 25)
  • £7.70 (21 – 24)
  • £6.15 (18 – 20)
  • £4.35 (16-17)
  • £3.90 (Apprentices)

HMRC’s enforcement activity has increased significantly over the last couple of years. Not only can non-compliant employers face repaying arrears to current and former employees, businesses can also face 200% penalties (this could be up to £20,000 per employee) and the prospect of their reputation also being damaged by being named in the media.

Please contact us or your payroll administrator as soon as possible to discuss your employee’s rate of pay if an increase is required or if you have any concerns with regards to the new payslip legislation.

If you do discover that you have underpaid an employee please contact us or your payroll administrator as soon as possible. Self-correction of any errors prior to HMRC identifying them will minimise the risk of penalties.

Tax Codes

From 6 April 2019 the new personal allowance for tax will increase to £12,500 per annum regardless of an individual’s date of birth. Therefore for all employees who are presently on a tax code of 1185L this will be increased by 65 points to 1250L.

UK Rate of Income Tax

From 6 April 2019, the UK tax rates and bandwidths are:-

UK Rate%Bandwidth
Basic Rate20£1 to £37,500
Higher Rate40£37,500 to £150,000
Additional Rate45£150,001 and above

Scottish Rate of Income Tax

The most significant change to the Scottish tax rates is the move from a three-band tax system to five therefore, from the 6 April 2018 the Scottish tax rates and bandwidths are:-

Scottish Rate%Bandwidth
Starter Rate19£1 to £2,049
Basic Rate20£2,049 to £12,444
Intermediate Rate21£12,444 to £30,930
Higher Rate41£30,930 to £150,000
Top Rate46150,001 and above

Please note it is really important that employers track their Scottish employees to ensure that they are taxed under the correct legislation.

Therefore it would be appreciated if you could also continue to encourage your employees to advise you and HMRC of any changes in address to ensure all records are kept up to date.  This also means HMRC can also ensure employees are taxed at the applicable tax rate.

National Insurance Contributions (NIC)

From 6 April 2019, the monthly salary that can be paid without incurring tax or national insurance will increase form £702 per month to £719.

This year there continues to be no difference between the primary threshold for employees NIC and the secondary threshold for employers NIC.

We recommend that directors who are paid at the threshold ensure they secure the qualifying year for state benefits without actually paying NIC. If we process your payroll we will increase your monthly amount based on the above rate from 6 April 2019 unless instructed otherwise.

Please note, National Insurance contributions are unaffected by the Scottish rate of income tax(i.e. NIC bands in Scotland are the same as in the rest of the UK)

Paying Employer National Insurance Contributions for employees under 21

Employers are not currently required to pay employers Class 1 NIC on earnings up to the upper earnings limit for employees who are under the age of 21.

Paying Employer National Insurance Contributions for apprentices under 25

You can continue to employ an apprentice where you may not be required to pay employer Class 1 NIC on their earnings below £892 a week (£46,350 per annum) if you’re apprentice is both:-

  • Under 25 years old
  • Following an approved UK government statutory apprenticeship framework

If you have apprentices that satisfy the above conditions you must hold strong evidence to apply the relief and retain the supporting information in case of an HMRC inspection. The below link provides further details. We will not be responsible for assessing whether the criteria is satisfied.

https://www.gov.uk/government/publications/national-insurance-contributions-for-under-25s-employer-guide/paying-employer-national-insurance-contributions-for-apprentices-under-25

Employment Allowance

The employment allowance will continue to be £3,000 from April 2019.

If there are any other companies/groups, charity structures which are connected then only one PAYE scheme can claim the allowance. Where the company is connected to other companies, you should advise where the employment allowance should be allocated.

Apprenticeship Levy

There are no changes to the apprenticeship levy which is part of the Government’s plan to increase the quantity and quality of apprenticeships.

All UK employers who have a total employee pay bill above £3m a year will pay the levy.  This includes public and private sector, charities and educational providers such as academy groups and universities.

The levy rate is set at 0.5% of your pay bill however employers will continue to get a £15,000 fixed annual allowance to offset against the levy payment.  Employers who operate multiple payrolls where the companies are connected will only be able to claim up to £15,000 allowance in total across the connected companies and should consider the optimum position in advance of the first payroll submission.

Statutory rates

The standard rate for Statutory Maternity, Paternity and Adoption Pay will increase to £148.68 per week.

The rate of Statutory Sick Pay will increase to £94.25 per week.

To be entitled to these statutory payments, your employee’s average earnings must at least be equal to the lower earnings limit which remains at £118.00 per week.

Student Loan Recovery

An employee’s annual earnings threshold at which repayment of student loan begins are:-

Plan TypeAnnual ThresholdRate
Plan Type 1£18,9359%
Plan Type 2£25,7259%
Postgraduate Loan£21,0006%

Automatic Enrolment Statutory Increases from April 2019

Minimum contribution Levels

The table below shows the current minimum contribution levels and the statutory increased amounts due from April 2019. The table has assumed that as the employer, you pay the minimum allowable, meaning that the employee must meet the remainder of the minimum overall total percentage:

Contribution BasisMinimum Employer %Minimum Employee %Minimum Total
Qualifying Earnings (*) 3%5%8%
Gross Earnings (Does not include Overtime, Bonus, commission etc)4%5%9%
Gross Earnings based on 85% of total earnings3%5%8%
Gross earnings on Full Pay3%4%7%

(*) based on Qualifying Earnings from April 2019 which are earnings that fall between £6,136 and £50,000 per annum (£512 to £4,167 per month).

If you do not already have a salary sacrifice scheme in place this is the time to seriously consider getting one.  There are considerable amounts of savings to be had for you and your employees.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/277523/EA_Guidance.pdf

Termination Payments

From the 6 April 2018, new legislation was introduced which applies to payments made on termination of employment regardless of whether there is a contractual right or not to receive the payment (which affects whether the payment should be subject to tax and NIC).

If the payment is a genuine result of redundancy a calculation must be performed on the payment which splits it into two elements to determine whether the £30k exemption can be applied to any of it.

HMRC look closely at payments made to individuals without tax deduction therefore termination payments should be carefully considered and documented from both a tax and legal perspective.

If you would like to discuss your Payroll needs or any other issues relating to the upcoming changes, please get in touch with claire.brown@taitwalker.co.uk

If you would like more information on salary sacrifice or termination payments please contact Clair.Williams@taitwalker.co.uk or Rachael.Matthewson@taitwalker.co.uk