April 2017; where the work of preparation begins
2017 is going to be both interesting and challenging. With Brexit and changing government leadership much is to be done and quickly. We have the details from the Autumn Statement, announcements from the Department of Work and Pension; The Pension Regulator and DWP on Pension reform adjustments, confirmation of the removal of Salary Sacrifice and some detail of the changes for Gender Pay Gap reporting from the Government Equalities Office (GEO).
Planning for change
Now is the time for the business to come together and plan for change. Software and service providers will be reviewing what software changes are required, however, a significant part of the change is configuration and internal business policy and process, a review of employment, benefits and employee wellness considerations. The high risk is spending time dealing primarily with confusion on impacts.
Payroll Managers are key in taking a lead in the business on much of this change – even if that is purely flagging up the impacts on the tax and NICs positions. The payroll has much of the existing detail of what happens with what and to whom – and this now requires analysis.
So these next few months are key in reviewing, especially where ‘Optional Remuneration Arrangements’ (Schedule 2 of the Finance Bill 2017) are in place – this impacts all employers with Salary Sacrifice or where a benefit can be given up for cash (such as company car schemes with options for cash). The Equality Act 2010 (Gender Pay Gap Information) Regulation 2017 places obligations where there are over 250 employees or public sector – this will likely require payroll assistance in providing at least base information for analysis, and maybe some expectation to carry out the analysis as placed on the business by law.
We also have the Apprenticeship Levy and its impacts on business where the pay bill exceed £3million per annum, and also the rise in Minimum Rates for pay period starting on or after 1st April 2017. If a businesses pay bill is under £3m, then there is no need to account for the Apprenticeship levy at all unless the £3m is exceeded mid-year, in which case an on-going fully year levy assessment is required until the close of the tax year.
Points to consider
Payroll Managers need to have sight or obtain the settings for each and every pay element and review their continued validity:
- Which part of the Hours and Earnings is to be included as Office of National Statistics (ONS) for Gender Pay Gap Reporting. For example, Overtime is not included.
- Which part of the Hours and Earnings is included for minimum pay purposes. For example, overtime premiums are not included, but equally deductions for payment to the employer impact minimum pay rates by reducing pay for minimum pay purposes
- Is the pay element to be used for Secondary NI purposes – this impacts the employer tax – i.e. the calculation on the employer of the Apprenticeship Levy
- Is this pay element representing a benefit covered by the change in rules for ORA or salary sacrifice arrangements. In which case, are the tax and NI setting requiring to be changed
- If the pay element is representing a benefit covered by the change in rules for ORA, are two sets with different settings now required to ensuring that any grandfathering arrangements can be applied, and until when, is that April 2018 (such as IT tech purchase schemes) or April 2020 (such as Cash or Car, accommodation arrangements or School Fees)
- Does the position on payrolling or P11D now change – is this item now reportable whereas before it was not, or the position is changed as to whether there is now a Class 1A liability on the employer
Much is not a change to payroll software, the capability is likely to be present, the change is in setting the pay element flags to reflect the revised position. Items that were marked as impacting Tax and NICs may need to be adjusted to reflect an impact on Tax only or vice versa.
Further review is required in 2018 when elements of ORAgrandfathering are removed, if the employee continues to receive the item, the tax status will change. Also announcement have been made on the treatment of termination payments, so the handling of Class 1A liabilities will need to be catered.