The U.K. tax year runs from 6 April until 5 April. The reasons for such an odd “year” are historical and a subject we could discuss in the future.
One of the joys (and challenges) facing those of us who have chosen a career in payroll is that with every new tax year, we face change. And the one constant within U.K. payroll is the certainty of change.
In recent years, we have faced some significant transformations, such as the introduction of Real Time Information (RTI)—arguably one of the biggest changes since PAYE began; and the roll out of compulsory workplace pension saving with automatic enrollment, as well as myriad changes brought about as a result of tax simplification.
However, for most tax years, the changes are less headline-grabbing but equally as impactful. This update from the U.K. provides a selection of subjects that will see change in the 2019-20 tax year.
National Minimum Wage Increases
The Low Pay Commission (LPC) recommendations for the National Minimum Wage (NMW) and National Living Wage (NLW) rates were accepted in full by the Chancellor in his autumn 2018 budget. For pay periods that begin on or after 1 April, the rates will be:
- NLW for a worker more than 25 years old will increase to £8.21 per hour
- NMW for a worker 21-24 years old will increase to £7.70 per hour
- NMW for a worker 18-20 years old will increase to £6.15 per hour
- NMW for a worker 16-17 years old will increase to £4.35 per hour
- The Apprentice rate will increase to £3.90 per hour
In December 2018, the Department for Business, Energy and Industrial Strategy (BEIS) published a brief employer guide providing examples to employers of the impact of the requirement to record hours on the payslip where pay is calculated by reference to time worked. This requirement begins April 2019 at the same time as the right to be supplied with a payslip is extended to include all workers and not just employees.
This additional detail adds an obligation on all employers and not just those employers that pay only the minimum wage rates. However, it has come about as a result of a recommendation made by the LPC following its 2016 annual review.
The accommodation offset will increase to £7.55 per day.
Accommodation continues to be a key area for employer error, together with uniforms and working time. At the time of writing, we await the publication of the LPC report on minimum wage compliance. Technical operation of the minimum wage continues to challenge the unwary and ill-prepared employer.
Income Tax Rates, Thresholds
One of my oldest memories of working in payroll was the annual increase of tax thresholds and rates. Back then, I had one set of rates to deal with—by that I mean for the U.K. Today, we face a very different picture as a result of increasing devolution measures across the four U.K. nations. The rates are as follows:
England and Northern Ireland
Basic rate 20% £1-37,500
Higher rate 40% £37,501-150,000
Additional rate 45% >£150,001
Higher rate threshold is £50,000
Wales
Previous articles have covered the introduction of a Welsh rate of income tax. For the time being at least, the Welsh Assembly is committed to matching the rates in England and Northern Ireland. The rates shown below will match those for all in the U.K., except for Scotland, from 6 April:
Previous articles have covered the introduction of a Welsh rate of income tax. For the time being at least, the Welsh Assembly is committed to matching the rates in England and Northern Ireland. The rates shown below will match those for all in the U.K., except for Scotland, from 6 April:
Basic rate 20% £1-37,500
Higher rate 40% £37,501-150,000
Additional rate 45% > £150,001
Higher rate threshold is £50,000.
So, how will this impact employers? Welsh resident taxpayers who are employed, or in receipt of a pension, will have a tax code beginning with C, and Her Majesty’s Revenue and Customs (HMRC) will issue appropriate tax code notices to employers in the normal manner based on the information they hold about the employee.
It remains vital for employees to keep HMRC updated when they have a change of address. HMRC’s preferred method for doing this is via the Personal Tax Account (PTA). Details, however, can still be changed via their telephone helpline service.
Scotland
We know from previous years that until rates have been debated and ratified by the Scottish Parliament, they are subject to change. As I write today, I can say with certainty that ratification is currently expected “some time” in February. You can check HMRC’s website at the rates and thresholds for employers: 2019 to 2020 section on www.gov.uk.
Starter rate 19% £1-2,049
Basic rate 20% £2,050-12,444
Intermediate rate 21% £12,445-30,930
Higher rate 41% £30,931-150,000
Top rate 46% > £150,001
Higher rate threshold is £43,430.
Automatic Enrollment Changes
The final phase of the mandatory workplace pension saving in the form of automatic enrollment is due after 6 April. As with previous rollout stages, the pensions regulator (TPR) recommended that the employer and its payroll professional allow sufficient time to ensure that any increase in contribution is processed in line with scheme rules.
The total contribution made must be 8% of qualifying earnings, which would require at least a 3% contribution from the employer leaving the employee contribution to be 5%. Where an employer decides to cover the total minimum contribution of 8% employees would not need to pay anything (unless they wanted to, of course).
In December 2018, the results of the Automatic Enrollment Annual Review were published proposing that the earnings trigger be frozen at £10,000, with an increase to the lower limit qualifying earnings band from £6,032 to £6,136 and the upper limit to increase from £46,350 to £50,000.
The automatic enrollment earnings trigger determines at what point an eligible person gets automatically enrolled into a workplace pension.
Every pension scheme is different, so it remains important to review the scheme rules to be certain which pay elements are included.
Student Loans
April 2019 will see two new postgraduate (PG) student loan types coming into repayment, and where applicable they will work concurrently with the existing plans 1 and 2.
While the P45, which provides details about the employee who is leaving work, will not be amended to show a PG loan separately, the Form P60, End of Year Certificate, has been amended to report the year to date totals at the end of the tax year. The new starter declaration form has also been amended to allow the extra options for employees to complete.
Beginning 6 April, student loan and PG loan thresholds and deduction rates will be:
Student Loan Plan 1 £18,935 9%
Student Loan Plan 2 £25,725 9%
Postgraduate Loan £21,000 6%
And Finally, Brexit
I can’t end without a mention of Brexit—a subject dominating the headlines. At the time of writing, we have no notion as to whether the U.K. Government will manage to agree on a “deal or no deal” exit from the European Union. What the future holds in terms of change remains largely unknown. However, one thing we can be certain of for those of us whose careers remain in payroll—changes are ahead.
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Samantha Mann, MAAT, MCIPPdip, is a Senior Policy & Research Officer for the Chartered Institute of Payroll Professionals (CIPP) who has more than 30 years of experience working within payroll in the SME sector. Sam uses her wealth of knowledge to provide technical support to the Advisory service, writing technical articles, and writing and delivering presentations.