Recently, there have been many changes to the legislation regulating payroll. Business owners need to be aware of the changes to the following, which took effect from the beginning of April:
Having previously announced in the 2016 Budget that new applications for childcare vouchers would close on 6 April 2018, the Government extended the entry deadline by an extra six months. This gives your employees more time to decide whether the vouchers or the Tax-Free Childcare (TFC) initiative – which helps with the cost of childcare – is better suited to them. The exact date is yet to be confirmed, but is expected to be in October 2018.
The Government increased the National Minimum Wage and National Living Wage rates, which took effect from 1 April. These changes see the largest increase that we have seen in a decade to the 18-20 and 21-24 year old rates.
The new rates are as follows:
*The apprenticeship rate only applies to apprentices aged under 19, or 19 or over who are in the first year of their apprenticeship. Apprentices aged 19 or over in their second year of apprenticeship must receive the NMW or NLW rate their age entitles them to.
These new rates apply to the next payment reference period that begins on or after the date:
- a rate increase begins (in this case, your April 2018 payroll run); or
- an employee reaches a new age bracket.
The Government made a commitment to helping people save for retirement. As a result, the contributions you and your employees need to pay into workplace pensions are increasing.
The phased rates are as follows:
There are also changes to the rates of Statutory Sick Pay and Statutory Maternity, Adoption, Paternity and Shared Parental Payments.
Full details can be found at www.moorestephens.co.uk
Not all sums payable under a settlement agreement are tax free, so you need to break down the different elements of a package and consider each part separately.
From April 2018, the following are subject to tax and NICs:
- Payments in Lieu of Notice (PILON): currently, if you don’t have a contractual right to make a PILON, any payment made in respect of an employee’s notice entitlement is generally regarded as ‘damages for breach of contract’ and the first £30k can be tax-free (and no NICs are due). Now, all PILONs will be taxable and subject to NICs, whether a contractual right is present or not.
- Post-employment notice income: if an employee doesn’t work their notice (for whatever reason) they still need to pay tax and NICs on any payments which correspond to the earnings they would have received if they had worked their notice. These earnings will be calculated on the basis of their actual earnings in the previous 12 weeks, including compensation for loss of taxable benefits (even if there was no PILON clause or it provided for basic salary only).
- Expected bonus income: this includes any bonus that the employee would’ve earned during their notice, or at another time, which relates to a time before their employment ended or the time that would have been their notice period. ‘Bonus’ includes commission, incentives or anything similar.
- Tribunal awards for unfair dismissal, redundancy payments and contractual payments in lieu of redundancy will continue to benefit from the £30k exemption.
It’s your responsibility, as an employer, to ensure your employees are paid in accordance with the changes outlined above. Automatic updates won’t be made to accommodate these changes, so it’s important you ensure you send the correct information to your payroll provider.
Running a payroll efficiently requires sound processes, as well as technical knowledge to ensure that all changes in tax rates and regulations are applied correctly. Moore Stephens provide tailored services to meet your individual needs, offering simple advice or full support through a fully managed, outsourced payroll function.
If you are uncertain as to how the above changes affect your payroll and the tax that you as an employer will pay, or you’re considering outsourcing your payroll, contact us on 01536 461900.