Payroll preparations for the new tax year – part 1

There’s an old saying ‘there are only two things in life that are guaranteed, death and taxes.’

Well, for the anyone dealing with payroll a third could be added: change. The Government may be busy with Brexit negotiations, but it somehow still finds time to come up with new ideas and changes that affect payroll and make a payroller’s life more complex.

In this the first of three articles the main changes due in the 2019-20 tax year will be covered.

Income tax

It is not news to payrollers and small agents that the Personal Allowance is increasing to £12,500. Nor is it news that the basic rate band (BRB) will increase to £37,500 so that anyone earning £50,000 or less per annum will not pay tax at a higher rate than 20%. What may not have registered so prominently are changes to the Scottish rate bands and the new Welsh rate of income tax. Both of these are coming into force from 6 April 2019 and though the payroll changes will be automatic in the software, the potential queries from confused employees, taxpayers, friends or even ‘mates down the pub’ will need preparing for.

Scottish rates of tax

The Scottish rates of tax for 2019-19 were ratified 21 February this year. There are five income tax bands and amounts as follows:

The increase in income tax rates and tax bands will not only make payrolling more complex, but also affect other related areas.

• Though pensions Relief At Source is unaffected as the Basic Rate remains the same at 20%, the amount on which the rate is charged is different. This could lead to queries from employees so make sure that you are happy with how the amounts are calculated to ensure that explanations are clear, and perhaps more importantly, confident.
• Separate calculations will be needed for any PAYE Settlement agreement (PSAs) as tax is charged at the marginal rate. This means that any Scottish tax payer benefits will need to be identified and separated from the rest of the UK (rUK) tax payer benefits before tax computations are made.

On the plus side the Scottish rates of tax do not affect

• the basic earnings assessment for Employer-Supported Childcare (this is not a devolved matter) or
• Automatic Enrolment assessments (the Qualifying Earnings Bands higher level is the same as the rest of UK).

As the source of all tax related knowledge (or that’s how most people view payrollers and accounts staff), you must be like the Scouts and ‘Be prepared’. Have the relevant information or links ready to provide a (free) service to those that may enquire.

Welsh rates of tax

Tax codes are now being issued with the new ‘C’ prefix. This indicates a Welsh tax payer as defined by HMRC’s residency test (the test uses the same parameters as used for identifying a Scottish resident).

The Welsh rates are calculated by using the rates used by rUK less 10%. The basic rate is therefore reduced from 20% to 10%, the additional rate from 40% to 30% and the higher rate from 45% to 35%. The Welsh Assembly then adds a specified percentage on top, giving rise to the Welsh rates. Though they have the power to do so from April 2019, the Welsh Government does not intend to increase income tax rates during the current Assembly (ends May 2021).

Implications

Though there are implications for payroll, currently those implications are hidden as the Welsh tax rates and bands are the same as rUK. However, once the rates and thresholds start to diverge the implications will become apparent, and as with Scottish residency employees, extra complexities and work may be needed to fulfil payroll duties.

Residency

Whether a taxpayer is a Scottish, Welsh or rUK resident is decided by HMRC and will be identified through the tax code, so don’t give in to pressure from any individual who tries to tell you differently. Any queries they may have should be referred to HMRC. The individual could also access their information via the individual Personal Tax Account. While they are there, they may wish to check their address as it is that that informs HMRC of where they resident!

National insurance

Now to the calmer waters of the national insurance rates and thresholds. Fortunately, the rates have not changed, and though the thresholds have, they apply to the whole of the UK. The Lower Earning Limit (LEL) has increased to an annual figure of £6,136, the Earnings Thresholds, both Primary and Secondary to £8,632 and the Upper Earning Limit (UEL) to £50,000.

There is one word of caution here. The Primary Threshold increase for 2019-20 (compared with the threshold for tax year 2018-19) is £208, whereas the corresponding increase in the UEL is £3,650. This means that some employees will be paying more national insurance contributions than last year. Again, you may have queries coming your way, so be prepared to show how the amounts are calculated.

Student loans

New tax year, new thresholds. And a new type of student loan deduction, the Postgraduate Loan. This new loan has a threshold of £21,000 and a deduction rate of Retail Price Index ( RPI )+ 3%, which currently works out at 6%. HMRC has made changes to the relevant documents (see part 2) so the administration of dealing with this new deduction should be straightforward.

The thresholds for the undergraduate loans Plan 1 and Plan 2 can be found with all the other relevant statutory deduction rates.

Getting ready

So far, only the basic statutory deductions have been outlined. In the blogs that follow the forms and submissions enabling all these changes and more will be covered, along with the national minimum wage increases, changes to automatic enrolment rates and thresholds, termination payments, the apprenticeship levy benefits and more.

New tax year, old slogan – Be Prepared!

Julie Hodgskin is a fellow member of AAT, runs a licensed accounting practice and is a technical materials author for CIPP.