Trends 2018: UK tax, benefit and minimum wage changes

If you thought 2017 was a busy year in the UK regulations-wise, just wait to see what 2018 has in store.

Last year, it was all about the introduction of the Apprenticeship Levy and Optional Renumeration Arrangement (OpRA) legislation that had an impact on salary sacrifice, flexible benefits systems and cash option benefit items such as company cars.

Her Majesty’s Revenue & Customs (HMRC) also introduced a plethora of changes that affected employers indirectly. These alterations included dynamic coding, which were intended to make Pay As You Earn (PAYE) tax codes more sophisticated, but still saw HMRC issue more than seven million P800 tax underpayment/overpayment letters. As a result, employers have responded by issuing numerous challenges.

Another change involved eradicating the need for employers to calculate predictive annual salaries, especially if one-off bonuses are paid, which has resulted in bank interest now being applied directly.

While in some cases the changes have resulted in more accurate tax collection, in others they have proven to be an unwelcome distraction that has taken significant time and effort to resolve often inadequately, leading to a lot of upset employees. And all the while, the uncertainty around Brexit also continues.

As for the year ahead, we have the new UK (and Isle of Man) tax year 2018/2019 to look forward to when it starts on 6 April. This date used to be New Year’s Day in days gone by but has been retained for tax purposes since the 18^th century when the calendar change took place.

As a result, payroll managers have a window of three months to prepare for, and review their preparations of, activities that in many instances are not simply about system changes but employment processes and rules as well. So what should be on your list for review:

1. Employment Allowance;
2. Apprenticeship Levy offset allowance;
3. New minimum pay rate application;
4. Payment In Lieu of Notice (PILON) processes and the ending of Foreign Service relief on termination payments;
5. Ending of the 5^th April 2018 grandfathering of OpRA;
6. Uplift of pension reform minimum pay contributions.

1. Employment allowance 

Employers that qualified for a £3,000 (US$4,013) employment allowance for the 2017/18 tax year will need to check that they are still eligible for it in 2018/19. They should also ascertain whether their ownership and application of a PAYE scheme has not changed their connected organisation or single director business status.

2. Apprenticeship Levy offset allowance

The £15,000 (US$20,063) offset allowance applies to all of the companies in a group and may be split across different PAYE schemes. Again verification of the current settings for the offset will need to be reviewed and splits for the 2018/19 tax year determined and applied. Any change in ownership or group structure must be taken into account to ensure that employers do not incorrectly apply multiple allowances.

3. Minimum pay rates (National Minimum and Living Wage)

The 2017 Autumn Budget agreed to the proposed nationally set, and significant, rises to minimum wage payments, while the Living Wage Foundation has already announced an uplift to voluntary living wage rates.

Employers who have signed up to support the Living Wage have six months from the 6 November 2017 to ensure they continue to meet the Foundation’s voluntary code requirements. But other employers will also need to prepare for wage rises as a result of the nationally-set legal minimums. All too often, rules are inadvertently breached, or in some cases deliberately ignored.

According to HMRC minimum pay audits, the main areas of confusion relate to:

• Timing of payments: Many employers are not aware of the point at which they should start applying new rates following changes to individuals’ ages;
• The minimum pay year does not consist of 52 weeks: This means that performing annualised averaging will not work;
• Deductions: Money taken out of an employee’s wage for the benefit of their employer may result in payments falling below minimum levels;
• Extra time: If employees are required to perform certain activities outside of their normal working hours, it must be paid for. Also watch out for time clock roundings. 

4. PILON

From 6 April 2018, whether Payment In Lieu of Notice is contractual or compensatory, it will be subject to both tax and Class 1 national insurance contributions (NICs) as well as student loan deductions and the like. As a result, HR and payroll professionals will need to review and change their payment policies to comply. They will also be required to remove foreign service tax relief from termination payments.

5. Revisions due to OpRA

OpRA changes are not over yet. A second tranche of Optional Remuneration impact changes need to be undertaken due to the ending of grandfathering options for many on 5 April 2018. Benefits, salary sacrifice, car versus cash and other arrangements will all have to be reviewed in light of OpRA, with payroll needing to reflect the revised and correct tax and Class 1A NICs position.

6. Pension contribution minimums

The first uplift in minimum contributions will apply from April 2018, and the second in 2019. This means it is time for employers, pension schemes and trustees to review and amend their scheme rules in order to comply with the new legislation.

Simon Parsons is director of payment, benefits and compliance strategies at HR and payroll services provider, SD Worx. He is also involved in a number of HMRC and government consultative groups and committees. As a fellow of the Chartered Institute of Payroll Professionals and one of the original Masters of Science in Payroll Management, Simon is also a regular author and speaker on payroll matters.

If you thought 2017 was a busy year in the UK regulations-wise, just wait to see what 2018 has in store.

Last year, it was all about the introduction of the Apprenticeship Levy and Optional Renumeration Arrangement (OpRA) legislation that had an impact on salary sacrifice, flexible benefits systems and cash option benefit items such as company cars.

Her Majesty’s Revenue & Customs (HMRC) also introduced a plethora of changes that affected employers indirectly. These alterations included dynamic coding, which were intended to make Pay As You Earn (PAYE) tax codes more sophisticated, but still saw HMRC issue more than seven million P800 tax underpayment/overpayment letters. As a result, employers have responded by issuing numerous challenges.

Another change involved eradicating the need for employers to calculate predictive annual salaries, especially if one-off bonuses are paid, which has resulted in bank interest now being applied directly.

While in some cases the changes have resulted in more accurate tax collection, in others they have proven to be an unwelcome distraction that has taken significant time and effort to resolve often inadequately, leading to a lot of upset employees. And all the while, the uncertainty around Brexit also continues.

As for the year ahead, we have the new UK (and Isle of Man) tax year 2018/2019 to look forward to when it starts on 6 April. This date used to be New Year’s Day in days gone by but has been retained for tax purposes since the 18^th century when the calendar change took place.

As a result, payroll managers have a window of three months to prepare for, and review their preparations of, activities that in many instances are not simply about system changes but employment processes and rules as well. So what should be on your list for review:

1. Employment Allowance;
2. Apprenticeship Levy offset allowance;
3. New minimum pay rate application;
4. Payment In Lieu of Notice (PILON) processes and the ending of Foreign Service relief on termination payments;
5. Ending of the 5^th April 2018 grandfathering of OpRA;
6. Uplift of pension reform minimum pay contributions.

1. Employment allowance 

Employers that qualified for a £3,000 (US$4,013) employment allowance for the 2017/18 tax year will need to check that they are still eligible for it in 2018/19. They should also ascertain whether their ownership and application of a PAYE scheme has not changed their connected organisation or single director business status.

2. Apprenticeship Levy offset allowance

The £15,000 (US$20,063) offset allowance applies to all of the companies in a group and may be split across different PAYE schemes. Again verification of the current settings for the offset will need to be reviewed and splits for the 2018/19 tax year determined and applied. Any change in ownership or group structure must be taken into account to ensure that employers do not incorrectly apply multiple allowances.

3. Minimum pay rates (National Minimum and Living Wage)

The 2017 Autumn Budget agreed to the proposed nationally set, and significant, rises to minimum wage payments, while the Living Wage Foundation has already announced an uplift to voluntary living wage rates.

Employers who have signed up to support the Living Wage have six months from the 6 November 2017 to ensure they continue to meet the Foundation’s voluntary code requirements. But other employers will also need to prepare for wage rises as a result of the nationally-set legal minimums. All too often, rules are inadvertently breached, or in some cases deliberately ignored.

According to HMRC minimum pay audits, the main areas of confusion relate to:

• Timing of payments: Many employers are not aware of the point at which they should start applying new rates following changes to individuals’ ages;
• The minimum pay year does not consist of 52 weeks: This means that performing annualised averaging will not work;
• Deductions: Money taken out of an employee’s wage for the benefit of their employer may result in payments falling below minimum levels;
• Extra time: If employees are required to perform certain activities outside of their normal working hours, it must be paid for. Also watch out for time clock roundings. 

4. PILON

From 6 April 2018, whether Payment In Lieu of Notice is contractual or compensatory, it will be subject to both tax and Class 1 national insurance contributions (NICs) as well as student loan deductions and the like. As a result, HR and payroll professionals will need to review and change their payment policies to comply. They will also be required to remove foreign service tax relief from termination payments.

5. Revisions due to OpRA

OpRA changes are not over yet. A second tranche of Optional Remuneration impact changes need to be undertaken due to the ending of grandfathering options for many on 5 April 2018. Benefits, salary sacrifice, car versus cash and other arrangements will all have to be reviewed in light of OpRA, with payroll needing to reflect the revised and correct tax and Class 1A NICs position.

6. Pension contribution minimums

The first uplift in minimum contributions will apply from April 2018, and the second in 2019. This means it is time for employers, pension schemes and trustees to review and amend their scheme rules in order to comply with the new legislation.

Simon Parsons is director of payment, benefits and compliance strategies at HR and payroll services provider, SD Worx. He is also involved in a number of HMRC and government consultative groups and committees. As a fellow of the Chartered Institute of Payroll Professionals and one of the original Masters of Science in Payroll Management, Simon is also a regular author and speaker on payroll matters.