New Year resolutions – preparing for the UK new tax year
Ring out the old, ring in the new! We thought 2017 was a busy year for the UK with the introduction of the Apprenticeship Levy and OpRA impacting salary sacrifice, flexible benefits systems and cash option benefit items such as Company Cars. HMRC introduced a plethora of changes which indirectly impacted employers with dynamic coding (yet continue to issue over 7 million P800 tax underpayment/overpayment letters) and an ability to not be able to calculate a predictive annual salary especially when a one-off bonus was paid. Now bank interest is being notified directly and numerous challenges to multi-tax codes are being issued to employers.
In many cases, the changes are of benefit resulting in the more accurate collection of tax. When it goes wrong, they are an unwelcome distraction which take significant time and effort to reach a continuing unsatisfactory position, extremely upset employee and employer relationships that can extend to the payroll and payroll service provision. And all while the Brexit uncertainty continues.
But now we have the new year to look forward to…
Not only 2018, but also the UK tax year 2018/2019 which begins on 6th April, the equivalent of the olden times new year day under the Gregorian calendar which is retained for tax purposes since the 18th century when the change of new years to 1st January was generally applied to the calendar. So,UK payroll managers have a new year window of 3 months to prepare for the much older UK (and Isle of Man) new tax year start. With the setting of new year resolutions, it is a good time for payroll professionals in the UK to review their preparations on items which are not purely system change, but challenge process and rules within employment.
So, what should be on the list for review?
- Employment Allowance £3,0000
- Apprenticeship Levy £15,000 offset allowance
- New Minimum Pay Rate application
- Payment In Lieu of Notice processes and the ending of Foreign Service relief on terminations
- The ending of the 5th April 2018 grandfathering of OpRA
- The uplift of pension reform minimum pay contributions
The qualification for the £3,000 employment allowance needs to be verified to ensure that those employers who qualified for the 2017/2018 tax year still qualify for the allowance in 2018/2019, that ownership and application of the PAYE scheme has not changed the connected organisation status or single director business.
Apprenticeship Levy offset allowance
The £15,000 offset amount applies to the employer group and may be split across the PAYE schemes. Again, verification of the current settings for the offset need to be reviewed and splits for the 2018/2019 tax year determined and applied. Any change in ownership or group structure needs to be taken into account to ensure that the employer does not incorrectly apply multiple allowances into the new year.
Minimum Pay (NMW/NLW)
The Autumn budget 2017 agreed to the proposed, and significant, rises to nationally set minimum payments, and the living wage foundation have already announced an uplift to the voluntary living wage rates. Employers who have signed up to the Living Wage have 6 months from the 6th November 2017 to ensure that they continue to meet the living wage foundation requirement for their voluntary code. And then employers need to prepare for the wage rises as a result of the nationally set and legal minimums. Employers are often being caught by inadvertent breaching of minimum pay rules, and some deliberate avoidance policies for a few. Set a goal to not be names and shamed in 2018.
According to HMRC minimum pay audits, the main areas of confusion relate to:
- Timing of payments – employers are not understanding when the new rates apply in relation to point of payment and age
- There are not 52 weeks in the minimum pay year – so annualised averaging is a trap concern
- Deductions for the benefit of the employer may reduce pay for minimum pay purposes
- Extra time – if employees are required to undertake work outside their normal time, then it must be paid, watch out for clock roundings. If it's worked, it must be paid.
Payment In Lieu of Notice (PILON) has the former taxable or none-taxable question mark removed. Whether the payment is contractual or compensatory, from 6th April 2018 the payment is subject to both tax and Class 1 national insurance (and student loan deductions, etc). Payroll and HR professionals need to review and change their payment policies to comply with this legal change as well as the removal of foreign service tax relief from termination payments.
Revisions as a result of OpRA
A second tranche of Optional Remuneration impact changes needs to be undertaken with the ending of grandfathering options for many on 5th April 2018. Benefits, salary sacrifice, flex, car v cash and other arrangements must be reviewed in light of OpRA with the payroll reflecting the revised and correct tax and Class 1A NICs position.
Pension Contribution Minimum
The uplift of minimum contributions applies from April 2018 (and then again in 2019). It is time for pension schemes, trustees and employers to review and amend their scheme rules to comply with the new laws on minimum contributions.
And to top it all there is the preparation for the General Data Protection Regulation which applies from May 2018. So, happy new year! There’s lots to be done to review and plan for the happy new UK tax year.