The new tax year and the bookkeeper

Those who deal with payroll will need to prepare for the various changes in this new tax year.

Tax allowances

The main allowances are increasing. The Personal Allowance increases to £11,850; the Married Couple’s Allowance (MCA) for those born before 6 April 1935 increases to £8,695 with the income limit for the MCA at £28,900, and the Marriage Allowance (Transferable Tax Allowance) will be £1,190.

HMRC would have notified employers of the increases before the new tax year started. The notice contained the tax code uplifts as follows;

Suffix L uplift by 35 (for example, 1150L will become 1185L)

Suffix M uplift by 39

Suffix N uplift by 31

The emergency tax code for 2018-19 will be 1185L W1 / M1 / X.

The tax allowances are not a devolved matter, so unlike the tax thresholds and rates, these allowances will be used for all employees, whether they are English, Welsh, Scottish or from Northern Ireland.

A final note on allowances. With immediate effect (from 29 November 2017), the Marriage Allowance can be transferred to and from a deceased spouse or civil partner. It can also be backdated four years.

And for any employees querying their tax code, logging on to their Personal Tax Account and viewing how the allowance is made up should help provide an explanation.

Devolved taxation

We may as a people be part of the United Kingdom, but the tax rates and thresholds are not. As the move to devolution continues tax rates and thresholds diverge.

Scotland

From April 2018 Scotland will have five different tax rates. They are as follows:

HMRC decides who is or is not a Scottish taxpayer and the decision is made, for the majority of employees, on place of residence. However, a small minority of employees may live in Scotland but work outside of Scotland. Their tax code will have a ‘S’ suffix, and as such, the payroller will enter the tax code into the payroll system and Scottish rates and thresholds will be applied.

Wales

Welsh tax is also being devolved, and from April 2019 the Welsh Government has indicated that it will implement its income tax powers. The new system will be similar, but not identical to the original Scottish system in that each of the three tax rates will be 10% lower than the rest of the UK, but then the National Assembly for Wales would be able to specify the percentage to add to each tax band.

The Welsh Assembly will have greater flexibility than the Scottish Parliament had originally, but what this means for the bookkeeper dealing with payroll is that there may be more queries coming their way in the form of ‘My gross pay is the same as my colleague, but my net pay is lower. Why is that?’ Just keep calm and be prepared with the answers such as an explanation of the tax code suffix and use of the Personal Tax Account via gov.uk.

RTI changes

2018-19 tax year changes to RTI deserve a mention here.

In the FPS if the employer is payrolling (instead of using the P11D procedure)

  • the fuel and car fuel fields that were optional in 2017-18 have now become mandatory.
  • ‘Serious ill health lump sum indicator’ is also mandatory
  • ‘Student Loan Plan Type in pay period’ has been added to identify whether the deduction made is Plan 1 or Plan 2.

These additions will save time for the payroller as it reduces the number of P11Ds to process and avoids errors in Student Loan Deduction amounts.

Last but not least, and perhaps important for the bookkeeper with an employer who is new to payroll, the three days grace for late filing has been extended to April 2018.

Minimum wage and automatic enrolment rate changes

No tax year update would be complete without a mention of the minimum wage changes and the automatic enrolment rate increases.

Minimum wage

As of 1 April 2018 all rates increased.

For apprentices aged under 19 years, and apprentices over 19 but in their first year of their apprenticeship the rate will be £3.70

For workers under the age of 18 but above school leaving age the rate will be £4.20

For workers between the ages of 18 to 20, £5.90

For workers between the ages of 21 – 24, £7.38 and finally for those above the age of 25, £7.83.

The accommodation off-set increased to £7.00 per day or £49.00 per week.

Automatic enrolment

These rates have also increased, and though workers may find that their net pay may not change much, (the increase in the wage may compensate for the increase in pension deductions) the employer will see both increases affecting the cashflow. From 6 April 2018 the minimum amount the employer will have to contribute has doubled. From 1% to 2%.

All of the increases need to be communicated and budgeted for, so contact your clients and email your managers to make them aware of the changes. Now.

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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