The Westminster Budget this autumn was, compared to more recent ones, a quiet one, which came as a relief to the bookkeeper who deals with payroll.
However, this does not mean that there is nothing to do. On the contrary, there are changes due this April, but these were either pre-announced, statutory, or, in the case of Scotland, post the Westminster Budget.
Below is a review of some of the changes due, and the impact they may have on organisation’s financial budgets.
The tax thresholds and rates
Tax has just got more complicated. We now have two different tax regimes in the UK, as Scotland is now exercising the right to have different tax thresholds and tax rates to the rest of UK. Wales has also been given further autonomy, and may later follow suit, though assurance has been given that it will not be for a few years yet.
The Scottish Budget took place in December, during which it was announced that not only will there be differing tax thresholds, but there will be more tax bands, and five different rates at which to pay tax:
- Starter rate of 19% for income between £11,850 – £13,850
- Basic rate of 20% for income between £13,850 – £24,000
- Intermediate rate of 21% for income £24,000 – £44,273
- Higher rate of 41% for income between £44,273 – £150,000
- Top rate of 46% for amounts above £150,000
These rates and thresholds have not been confirmed yet. But, even if some do change, the overall strategy by which tax revenues are collected will remain the same.
Rest of UK
By comparison, calculating tax for the rest of the UK population is a lot easier. Just remember though, an employee may work in England, Wales or Northern Ireland, it does not mean that they automatically pay tax at the UK rate. HMRC may decide that the employee is, for tax purposes, Scottish, with all the resultant tax thresholds and rates that accompany the definition. It may be worth confirming with the software provider that the payroll programme can cope with the variation.
Apprentice and National Minimum Wage rates
Another year, another increase in the rates. Prepare for the increase by:
- Reviewing all staff birth dates for critical age changes (that is, employees who at the next birthday are either 16, 18, 21 or 25 years of age)
- Communicating the increase in rates to the employer(s) so that the increased costs can be built into the budgets and cashflows
- Confirming with the employer when the rate change should take effect. From the start of the relevant pay period, or from the actual birth date? And if the rate change will happen on the birth date then further investigation needs to be undertaken as to how the daily rate is calculated. Is it on 365 calendar year, a 260 working day year, or something else entirely?
- Identify the apprentices who have completed their first year of the apprenticeship and move them immediately onto the relevant NMW rate.
From 6 April 2018 the total minimum contribution rates increases to 5%. For the employer the minimum is 2% and for the employee the increase will be the difference between the two. However, these amounts are the minimum. Both employer and employee can contribute more if they so wish.
The thresholds increase with the national insurance thresholds, though the £10,000 trigger for automatically enrolling someone who is 22 years or older remains the same.
Remember to review all employees for the £10,00 trigger, including those on the national minimum wage.
National insurance contributions
Finally, a bit of good news for the cashflow. The national insurance bands have increased as follows:
- Lower Earnings Limit – £116
- Primary threshold – £162
- Upper Earnings Limit – £892
- Secondary thresholds – £162
The impact of these changes may not make up for the increases in other staff costs, but it is a bit of good news, and it could be used to end a discussion on a positive note.
At Autumn Budget the Chancellor announced an increase in the Personal Allowance in line with inflation (from £11,500 to £11,850). This will give an extra £350 free-of-tax pay to every individual and a tax reduction of £70.
Many will question whether, given inflation, this will be noticed, but there is another way of viewing the little ‘give away’. Given that people will not notice the increase in the Personal Allowance (and subsequent reduction in tax), they will not miss it if it is used for something useful.
So, a suggestion is, why not pay the amount into a workplace pension? This action will be particularly useful for younger employees as the pension fund will have longer to increase, but regardless of age, any increase in contributions into the pension will be beneficial. But there are other advantages too.
- For every £1 contribution into a pension fund the government will add tax at the relevant rate to the fund so, for a basic rate tax payer, the £1 contribution increases to £1.25 immediately. The increase is more for those paying additional and higher rate tax.
- The Basic rate threshold will increase by the amount of the pension contributions, reducing the overall tax burden.
- When the employee retires there will be a greater ‘money pot’ on which to draw.
The only reason why this will not happen is because it has not been thought through. As a pro-active, financially savvy payroll-bookkeeper, why not be the one to mention this option?
Apart from the Personal Allowance, the above changes all have financial implications for the employer. The employer needs to be aware of those changes in order to build a realistic budget and recruitment strategy for the coming year, so start writing those emails now.
Julie Hodgskin is a fellow member of AAT, runs a licensed accounting practice and is a technical materials author for CIPP.