It seems that life for UK payroll professionals is unlikely to settle down to a gentler programme of change, in terms of both legislation and employment practices, for a while to come.
The start of the financial year in April, for example, brought some significant shifts. We saw the first stage of grandfathering, which ended the first year of the Optional Remuneration Arrangement (OpRA) transition.
We experienced the first rise in pension auto enrolment (AE) minimum contributions and dealt with phased changes being applied to termination payments. Voluntary payrolling requirements also led to a significantly different approach to reporting in relation to company cars when compared with the old P46 (Car) form days.
But yet more chopping and changing is on the way. Here is a taste of what is to come:
Dynamic tax codes: Imminent
Employers are continuing to face challenges in relation to Real Time Information (RTI) Pay as you Earn reporting. The issue is that when it works, it works well, but when things go wrong, they are spectacularly problematical.
But HM Revenue and Customs (HMRC) is now also readying the introduction of dynamic tax codes. Part of this process is to ensure that the tax code that HMRC expects to be used actually is in practice. If it is not, employers will be issued with a repeating tax code change instruction via a P6 notice.
Northern Ireland fines and penalty enforcement AEO: June 2018
On 23 April 2018, The Justice (2016 Act) (Commencement No.2) Order (Northern Ireland) 2018 initiated a new type of Attachment of Earnings Order (AEO) for Northern Ireland in order to take money directly from employees’ wages to repay debt, including income tax, if required. The new legislation will come into force as of 1 June.
Fortunately, the AEO very much aligns with the weekly and monthly Direct Earning Attachment (DEA) used by the Department for Work and Pensions (DWP) and local authorities when recovering housing benefit and the like. So although the move was an unexpected one for payroll managers, pre-existing DEA support may be enough to cover the new requirements.
Brexit – March 2019
While HMRC continues to move forward with its digital strategy, Brexit, which is due to take place in March 2019, means the pace of change has slowed.
Welsh taxation: April 2019
Tax continues to be devolved across the UK, and April 2018 saw the ‘rest of the UK’ category be reduced to England and Northern Ireland, whereas it had formerly included Wales.
For a number of years, the Scottish Parliament (whether the powers were used or not) could vary the amount of income tax it raised. 2017 was the first year that Scotland broke away from the rest of the UK by introducing Scottish Tax. 2018, however, was the first year in which there were significant changes to tax bands and additional taxation rates.
In April 2019, similar powers will also be given to the Welsh Assembly. For the first time, it will be required to set Welsh tax rates in order to obtain its share of the wider UK tax slice. From this point, the RTI Full Payment Submission field ‘Tax Regime’ will include an additional allowed value of ‘C’ for Wales/Cymru as well as the existing ‘S’ for SRIT/Scotland.
In other words, UK employers will have to operate three different taxation regimes covering Scotland, Wales and the rest of the UK (England and Northern Ireland). The hope is that the Basic Rate remains common across all three areas, otherwise pensions will become complex in the case of Relief At Source schemes.
Postgraduate loans: April 2019
Since the start of the academic year 2016, graduates have been able to borrow funding for postgraduate studies such as a Masters or PhD. But as of April 2019, the first postgraduate loan deductions must be recovered via payroll at a rate of 6% on earnings that are over £21,000.
HMRC is also preparing changes to the New Starter Checklist and new postgraduate loan deduction start (PGL1) and stop (PGL2). These notifications will be introduced independent of pre-existing Student Loan SL1 and SL2 notices.
AE pension contributions increase: April 2019
Following on from 2018’s 100% employer and 200% employee increase in minimum AE pension contributions, there will be another 50% increase for employers to 3% and a 2/3rds contributions increase for employees to 5% from April 2019.
The DWP is also proposing to make changes to AE on the basis of contributions, who should be enrolled and the like. This means that complexity is only likely to rise, with contributions starting to bite into both take home pay and business profitability.
Hours on pay statements: April 2019
As of April 2019, employers will be legally obliged to show the number of hours that workers are being paid for on their pay statements or payslips. This is one of the many measures coming into force following the Taylor Review to ensure that low paid workers are not exploited.
Further proposals are also being considered in relation to employment rights and the policing of National Minimum Wage and holiday payments – powers that may be handed over to HMRC.
Termination payments: April 2019
Delayed changes in relation to Class 1A National Insurance Contributions (NICs) on termination payments over £30,000 are to be progressed, but it is still unclear how this will take place - apart from in relation to one element of a proposal that was originally set to come into force in April this year. This element means that employers will now have to pay a 13.8% NI tax on amounts exceeding £30,000 if their employees receive tax and NI-free termination payments on that £30,000.
To conclude, it is clear that the payroll space is a long way from reaching a steady state as yet, which means that payroll professionals will really need to keep on their toes over the months and years ahead.
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.
It seems that life for UK payroll professionals is unlikely to settle down to a gentler programme of change, in terms of both legislation and employment practices, for a while to come.
The start of the financial year in April, for example, brought some significant shifts. We saw the first stage of grandfathering, which ended the first year of the Optional Remuneration Arrangement (OpRA) transition.
We experienced the first rise in pension auto enrolment (AE) minimum contributions and dealt with phased changes being applied to termination payments. Voluntary payrolling requirements also led to a significantly different approach to reporting in relation to company cars when compared with the old P46 (Car) form days.
But yet more chopping and changing is on the way. Here is a taste of what is to come:
Dynamic tax codes: Imminent
Employers are continuing to face challenges in relation to Real Time Information (RTI) Pay as you Earn reporting. The issue is that when it works, it works well, but when things go wrong, they are spectacularly problematical.
But HM Revenue and Customs (HMRC) is now also readying the introduction of dynamic tax codes. Part of this process is to ensure that the tax code that HMRC expects to be used actually is in practice. If it is not, employers will be issued with a repeating tax code change instruction via a P6 notice.
Northern Ireland fines and penalty enforcement AEO: June 2018
On 23 April 2018, The Justice (2016 Act) (Commencement No.2) Order (Northern Ireland) 2018 initiated a new type of Attachment of Earnings Order (AEO) for Northern Ireland in order to take money directly from employees’ wages to repay debt, including income tax, if required. The new legislation will come into force as of 1 June.
Fortunately, the AEO very much aligns with the weekly and monthly Direct Earning Attachment (DEA) used by the Department for Work and Pensions (DWP) and local authorities when recovering housing benefit and the like. So although the move was an unexpected one for payroll managers, pre-existing DEA support may be enough to cover the new requirements.
Brexit – March 2019
While HMRC continues to move forward with its digital strategy, Brexit, which is due to take place in March 2019, means the pace of change has slowed.
Welsh taxation: April 2019
Tax continues to be devolved across the UK, and April 2018 saw the ‘rest of the UK’ category be reduced to England and Northern Ireland, whereas it had formerly included Wales.
For a number of years, the Scottish Parliament (whether the powers were used or not) could vary the amount of income tax it raised. 2017 was the first year that Scotland broke away from the rest of the UK by introducing Scottish Tax. 2018, however, was the first year in which there were significant changes to tax bands and additional taxation rates.
In April 2019, similar powers will also be given to the Welsh Assembly. For the first time, it will be required to set Welsh tax rates in order to obtain its share of the wider UK tax slice. From this point, the RTI Full Payment Submission field ‘Tax Regime’ will include an additional allowed value of ‘C’ for Wales/Cymru as well as the existing ‘S’ for SRIT/Scotland.
In other words, UK employers will have to operate three different taxation regimes covering Scotland, Wales and the rest of the UK (England and Northern Ireland). The hope is that the Basic Rate remains common across all three areas, otherwise pensions will become complex in the case of Relief At Source schemes.
Postgraduate loans: April 2019
Since the start of the academic year 2016, graduates have been able to borrow funding for postgraduate studies such as a Masters or PhD. But as of April 2019, the first postgraduate loan deductions must be recovered via payroll at a rate of 6% on earnings that are over £21,000.
HMRC is also preparing changes to the New Starter Checklist and new postgraduate loan deduction start (PGL1) and stop (PGL2). These notifications will be introduced independent of pre-existing Student Loan SL1 and SL2 notices.
AE pension contributions increase: April 2019
Following on from 2018’s 100% employer and 200% employee increase in minimum AE pension contributions, there will be another 50% increase for employers to 3% and a 2/3rds contributions increase for employees to 5% from April 2019.
The DWP is also proposing to make changes to AE on the basis of contributions, who should be enrolled and the like. This means that complexity is only likely to rise, with contributions starting to bite into both take home pay and business profitability.
Hours on pay statements: April 2019
As of April 2019, employers will be legally obliged to show the number of hours that workers are being paid for on their pay statements or payslips. This is one of the many measures coming into force following the Taylor Review to ensure that low paid workers are not exploited.
Further proposals are also being considered in relation to employment rights and the policing of National Minimum Wage and holiday payments – powers that may be handed over to HMRC.
Termination payments: April 2019
Delayed changes in relation to Class 1A National Insurance Contributions (NICs) on termination payments over £30,000 are to be progressed, but it is still unclear how this will take place - apart from in relation to one element of a proposal that was originally set to come into force in April this year. This element means that employers will now have to pay a 13.8% NI tax on amounts exceeding £30,000 if their employees receive tax and NI-free termination payments on that £30,000.
To conclude, it is clear that the payroll space is a long way from reaching a steady state as yet, which means that payroll professionals will really need to keep on their toes over the months and years ahead.
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.
