Payroll: where are we, and where are we going?

Updating payroll regulations and reporting is seen as a critical component of the government strategy to modernise the payroll function, and in so doing mirror the needs of the flexible and mobile workforce of today.

No longer do individuals expect, or are expected, to work for the one employer the whole of their working life. Job mobility is a characteristic of today’s workforce, changing jobs to gain experience, work-life balance, promotion and increased pay.

In the modern economy many people can have more than one job at a time. All of this has challenged the accepted way of viewing the workforce and of processing the payroll function. It has made necessary a review of processes and of the management of the national workforce pay and pensions as a whole.

Real Time Information

One of the first areas to be updated was that of the payroll function. While business communication became more and more electronic, the payroll function could still be performed manually, with data transfer to HMRC in paper form.

However, with the introduction of the then new Universal credit there increased a need to have up to date and contemporary information on an employee’s pay to avoid an over or under payment of tax credits.

Real Time Information (RTI) was seen as part of the solution to this, and transformed the reporting of payroll information from a paper exercise to an electronic one. RTI is still being developed, so keeping up to date with any changes is paramount.

Automatic enrolment

RTI was followed by the development of the automatic enrolment of employees into a workplace pension. This is still being rolled out to the small and micro employers, so a check on the staging date of every organisation is a must.

Once enrolled the process of assessing the staff by age, salary and eligibility needs to be repeated every pay period, and any opt-outs or opt-ins processed. If the payroll software used does not do it, then this process will need to be performed manually. Monitoring of client’s or your employer’s staging date, staff profile and future notices is very necessary to avoid potential penalties.

Payrolling of benefits in kind

Is this the end of the P11D?

Well, it was the end of the P9D, but the paper P11D is still with us at present. But given the drive to modernise the payroll function, the process of expanding the use of electronic transfer of data is just another step in reducing the need for paperwork and making efficient the dealings between HMRC and individual employers.

This process will reduce the costs to employers, but it can also be of benefit to the employee in the long term, though there may be some initial resistance in the transitional year as it’s possible for the employee to be paying tax on benefits received in a previous tax year as well as paying tax on benefits received in the current tax year.

Management of the transition is key as the benefit for the employer in future is efficient working, and for the employee that they will receive their full personal allowance for the year which can only increase the perception that HMRC has got the relevant information and performed the correct calculations.

2016-17 tax year was the year in which this was implemented. Any ‘teething problems’ should now be sorted. The process is simple and builds on the P11D format, so clients and employers should be encouraged to use this method when reporting benefits in kind to staff. Monitor any developments on this for 2017-18 tax year.

Trivial benefits

Dispensations have been abolished and a new reporting regime came into being.  There is a new statutory exemption of £50, with some exceptions, that will make the monitoring and control of these benefits easier and less prone to error. The record keeping is very similar so the benefits in time and money should be evident.

So, that is what has happened so far. What is due for 2017-18 tax year and beyond? What is in and what is out? Below are some of the ‘hot topics’ that are being discussed at present.

Apprenticeship levy

For employers with a £3,000,000 pay bill or above a levy of 0.5% will be made. The levy will be made through payroll. Further information and detailed methodology is still to come, hopefully in the next few months.

Gender pay gap reporting

With an April 2017 date for collection of the data the final regulations have yet to be published. There are differences between the private and public sector, and it is yet to be seen how the two sectors will be aligned. Employers with 250 plus staff will need to be alert to any developments as further information is expected soon.

2016-17 and beyond

There are developments in:

Personal tax account: This seems to have been well received given the number of people willing to put their bank details onto the world wide web in order to receive their (potential) tax rebate sooner. The information needed and displayed in this area can only increase.

Pensions dashboard: Automatic enrolment does not deal with multi-employer situations, and could mean that many employees who have several jobs, each paying less than the current minimum £10,000 do not contribute to a workplace pension. This is something that the government is going to have to resolve if the aim is to have fewer retirees living in poverty. The pensions dashboard could perhaps offer a solution in that it could identify the amount of contributions payable on the accumulated annual salary (link with the above personal tax account) with the option to contribute to a pension via the dashboard. Only time, and a bit of joined up thinking will tell.

Definition of tax avoidance: The post-referendum economic consequences are playing out now. Whatever happens, there will always be a need for more tax income to finance our state and welfare costs. Tightening the definition of tax avoidance will increase that income.

Holiday pay and what is included: Despite recent rulings we are no nearer to a concrete definition on the calculation of holiday pay. What is needed is a challenge in the courts to turn the theory into practical examples.  Until then, ensure that all policies and handbooks are explicit in what is, and isn’t included.

And don’t forget about the State Pension age (SPA). Eligibility to receive a state pensions is dependent on age. However, the age at which an individual is able to claim their pensions is ever increasing. This has implications on which class of national insurance is paid. Again, as with automatic enrolment, the age of individual employees must be reviewed on a monthly basis to avoid incorrect deductions.

Going, going, gone

Having looked at the new, what about the old?

As mentioned, the P9D and dispensations have gone, and by the end of the 2016-17 tax year we will be saying goodbye to class 2 national insurance contributions too, as well as the end to the Class 3a voluntary ‘top up’. Anyone in the relevant age bracket (retired or was due to retire before 6 April 2016) should be encouraged to explore the Class 3a NICs before this date as it could make a significant difference to their post-employment income.

Finally

The above mentions only a few of the developments in pay and the payroll function. There are other areas of development, such as tax free childcare and Shared Parental leave that are recent additions and add to the payroll burden and regulation. So, what do we do to keep up to date?

  1. Read AAT blogs, magazine, webcasts, webinars, and attend branch events and masterclasses
  2. Read as much payroll information as possible, both written and on the internet, both GOV.uk and independent sources
  3. Sign up to Chartered Institute of Payroll Professionals (CIPP), an organisation that focuses solely on payroll and provide training courses, webinars and qualifications.

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

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