Payroll Year-End Bulletin – Spring 2021
As the payroll year-end is fast approaching, we thought it would be useful to look ahead to the new tax year 2021/22 and provide you with a summary of the main legislative changes which affect payroll.
There is a small uplift to the personal allowance and statutory payments, increases in the tax bandwidths and national insurance thresholds. 2021/22 sees big changes to Student Loans with the introduction of the Scottish Student Loan, Plan 4. The existing Plan 1 and Plan 2 loans remain in place, and any changes to loan categories will be instructed by HMRC.
As usual, the National Minimum Wage increases on 1st April, but we see a big change to the age threshold for the national living wage.
Along with this, we provide information on the Apprenticeship Levy, IR35 and some other topics which you need to be aware of if you are involved in your organisation’s payroll function.
Of course, we are not forgetting the Coronavirus Job Retention Scheme. We have provided a summary of the latest developments and guidance for the coming months, however, it’s important to note this is accurate at the time of issue, and there will be further guidance and updates issued as they arise over the next few months, so please keep a close eye on our website for updates.
There is a general uplift of all tax codes with ‘L’ suffix by 70, meaning an employee with a code of 1250L will have their tax code increased to 1257L.
The emergency tax code will be 1257L M1/W1
Full details of what the prefix and suffix letters on a tax code mean can be found here.
The rates of tax and thresholds are shown below. Please note this table shows the taxable income bands after any personal allowance has been applied.
|UK RATE||%||BANDWIDTH||SCOTTISH RATE||%||BANDWIDTH|
|Basic Rate||20||£1 to £37,700||Starter Rate||19||£1 to £2,097|
|Higher Rate||40||£37,701 to £150,000||Basic Rate||20||£2,098 to £12,726|
|Additional Rate||45||£150,001 and above||Intermediate Rate||21||£12,727 to £31,092|
|Higher Rate||41||£31,093 to £150,000|
|Top Rate||46||£150,001 and above|
The Scottish bandwidths and rates will apply to all employees with the ‘S’ Prefix on their tax code. A Scottish Taxpayer is determined by their place of residence. Welsh Taxpayers will see a C prefix on their tax code, and they will pay tax equivalent to the UK rate.
If any of your employees are unsure if their tax code is correct, they should query this with HMRC.
Tax year 21-22 brings a change to Student Loans, with the introduction of the Scottish Student Loan.
Student Loan Plan 1 – Deductions of 9% applied to monthly earnings exceeding £1,657.91
Student Loan Plan 2 – Deductions of 9% applied to monthly earnings exceeding £2,274.58
Student Loan Plan 4 – Deductions of 9% applied to monthly earnings exceeding £2,083.33
Post Graduate Loan – Deductions of 6% applied to monthly earnings exceeding £1,750.00
The employee starter checklist has been updated with a Plan 4 loan. It’s advisable to use a starter checklist for all new employees, even those providing a P45 from their previous employer, as this will ensure the correct Student Loan Plan is applied.
The rates and thresholds for Employee and Employers Class 1 National Insurance (which apply to the whole of the UK) are:
|Lower Earnings Limit||£120||£520||£6,240|
|Primary Threshold (PT)||£184||£797||£9,568|
|Secondary Threshold (ST)||£170||£737||£8,840|
|Upper Secondary Threshold (under 21) (UST)||£967||£4,189||£50,270|
|Apprentice Upper Secondary Threshold (apprentice under 25) (AUST)||£967||£4,189||£50,270|
|Upper Earnings Limit (UEL)||£967||£4,189||£50,270|
|NI CATEGORY LETTER||EMPLOYEE||EMPLOYEE||EMPLOYER||EMPLOYER|
|EARNINGS ABOVE PT AND UP TO THE UEL||BALANCE OF EARNINGS ABOVE UEL||EARNINGS ABOVE ST AND UP TO THE UEL||BALANCE OF EARNINGS ABOVE UEL|
|H (app under 25)||12%||2%||0 %||13.8%|
|M (under 21)||12%||2%||0 %||13.8%|
|Z (under 21-deferment)||2%||2%||0%||13.8%|
Main Statutory Payments
|Statutory Maternity Pay for the first 6 weeks||90% of the employee’s average earnings||Small Employers Relief threshold||£45,000|
|Statutory Maternity Pay for the remaining weeks||£151.97 or 90% of the employee’s average weekly earnings, whichever is lower.||Recovery rate for small employers||100% of SMP/SPP SAP/ShPP plus 3% compensation|
|Statutory Paternity Pay/ShPP weekly rate||£151.97 or 90% of the employee’s average weekly earnings, whichever is lower||Recovery rate for large employers||92%|
|Statutory Sick Pay||£96.35 full weekly rate (not recoverable)|
There are no changes to Employment Allowance for the 2021-22 tax year. You can claim Employment Allowance if you are a business or charity and your employers’ Class 1 NIC total in the preceding tax year was less than £100,000. Remember that class 1 NIC on payments to off-payroll workers do not count towards this threshold.
There are some exemptions to eligibility for employment allowance. If your business is part of a group, if you have more than one payroll, if de minimis state aid rules apply to you, your eligibility will be affected. More details on eligibility can be found here.
National Minimum Wage / National Living Wage
The National Minimum Wage / Living wage will increase on 1st April 2021
Notice the big change this year, the National Living Wage rate which increases from £8.72 to £8.91 is now extended to 23 and 24-year-olds for the first time.
If your employees are currently paid at minimum wage, the increase will apply from the next pay reference period after the increase. For example, an employee is paid on 15th April for the month 16th March to 15th April. The old rate will apply until the next pay reference period starts on 16th April. It’s important that you and your employees have a clear understanding of the pay reference period.
|Category||Rate applicable from 01.04.21||Rate applicable from 01.04.20|
|23 years and over (previously 25)||£8.91||£8.72|
|21-22 years old (previously 21-24)||£8.36||£8.20|
|18-20 years old||£6.56||£6.45|
|16-17 years old||£4.62||£4.55|
|Apprentices (under 19, or 19 and over in their 1st year of apprenticeship)||£4.30||£4.15|
Payrolled Benefits in Kind
Payrolling benefits in kind allows employers, once registered with HMRC, to report employee benefits via the payroll. There are advantages to dealing with the taxation of your employee benefits this way, but it is not the right solution for every organisation. Registration for Payrolling Benefits in Kind must be made online before the start of the tax year in which the employer wants to start payrolling benefits. You can find more information here.
Please get in touch if you would like to discuss this further.
The Apprenticeship Levy
The apprenticeship levy applies to companies with a ‘paybill’ of at least £3 million per annum. The amount payable is 0.5% of the paybill, but the first £15,000 is exempt. Where there are a group of associated companies, the £15,000 exemption must be shared amongst them and a decision on the split of this allowance between the companies must be made at the start of the tax year. You can find out more about how the calculation works here.
If you employ apprentices, this may be an opportunity for you to receive funding. More information can be found here.
Gender Pay Gap Reporting
If you have more than 250 employees, you must publish and report specific figures about your gender pay gap. More information is available from GOV.UK here.
The changes to the Off-Payroll working rules were originally due to come into effect on 6th April 2020 for all medium to large private-sector employers. The introduction was delayed due to the pandemic, and the regulations will now become effective from 6th April 2021. There are lots of things employers need to do to ensure they comply with these regulations and you will find more information on our website, or here.
The IR35 rules do not apply to small businesses. A business will be small if it satisfies two or more of the following requirements:
- It has an annual turnover not exceeding £10.2m
- It has a balance sheet total not more than £5.1m
- It had an average of no more than 50 employees for the company’s financial year.
However, please remember that the rules surrounding employment status apply to all businesses.
We strongly recommend that you check the employment status of any persons working for you who are not paid through your payroll. You can do this using HMRC’s CEST tool here.
If you would like further information on this, please get in touch.
Focusing on the requirements from a payroll perspective, the main things to be aware of are:
- Payroll needs to be aware that the worker is an off-payroll worker.
- The off-payroll worker must complete a starter checklist and tick statement C.
- PAYE and NIC deductions are taken from the invoice total less VAT, materials and equipment.
- The off-payroll worker must be paid the invoice total including materials, equipment and VAT, less the deemed payment deductions.
- Auto Enrolment pension and statutory payments do not apply to the off-payroll worker.
- A payment statement must be issued to the off-payroll worker.
The payroll software will be set up to report this correctly to HMRC.
The Department for Work and Pensions and The Pension Regulator have confirmed the thresholds applicable for pay reference periods commencing from 6th April 2021. There is no change to the Lower level of qualifying earnings (£6,240) or the earnings trigger (£10,000) but the upper level for qualifying earnings increases to £50,270.
There is no increase in minimum pension rates which remain at 3% for employers and 5% for employees on qualifying earnings. Your own scheme may have more favourable terms.
Every three years, you’ll need to re-enrol workers who are eligible for automatic enrolment but aren’t in a qualifying scheme.
The Pensions Regulator (TPR) sometimes refers to this as ‘automatic re-enrolment’ or ‘cyclical re-enrolment’. It’s also known as ‘three-year re-enrolment’.
This includes workers who’ve previously:
- stopped making contributions, or
- opted out, without having since opted back in.
The exceptions to three-year re-enrolment duties are:
- You don’t have to include any workers who’ve done either of these things within the 12 months prior to your re-enrolment date, although you can include them if you want to.
- There’s also no legal requirement to re-enrol workers who:
- have given in their notice to end their employment with you
- have been given notice of dismissal by you or
- you know they have protection from the lifetime allowance.
If we look after your auto-enrolment scheme, we will contact you when your re-enrolment date approaches, but notifications from the Pension Regulator should never be overlooked.
All workers, not only employees, have the right to receive an itemised pay statement (or payslip). There is an additional requirement to provide information regarding the number of hours that are being paid. The aim is to increase transparency between you and your workers.
Coronavirus Job Retention Scheme
During the chancellor’s budget speech on 3 March, it was announced that the Coronavirus Job Retention Scheme (CJRS) would be extended to 30 September 2021. This means that employers can continue to furlough employees (either fully or partly) and claim a furlough grant from the government for longer than originally planned.
The scheme rules will, in the main, remain the same. However, the following changes will be made in the coming months:
- From 1 May, the scheme will also open to employees who were employed as at 2 March 2021, that previous did not qualify to be furloughed. To qualify, the employee needs to have been included on the employers’ payroll RTI submission between 20 March 2020 and 2 March 2021.
- The level of the grant available to employers under the scheme will remain unchanged until 30 June 2021, being 80% of the furloughed employees wages, up to a cap of £2,500 per month, for the hours not worked when an employee is either fully furloughed or flexibly furloughed.
- From 1 July, the furloughed employee must continue to receive 80% of their wages for the hours that they are furloughed, however, the amount that can be reclaimed from HMRC will be reducing to:
- 70%, up to a maximum of £2,187.50, from the government from 1 July, with the employer having to pay 10% of the furloughed wage bill, up to a maximum of £312.50
- 60%, up to a maximum of £1,875.00, from the government from 1 August, with the employer having to pay 20% of the furloughed wage bill, up to a maximum of £625.00
Guidance will be given shortly for how calculations should be made for claims periods starting on or after 1 May 2021.
Get in touch
If you have any questions about anything we’ve covered within this bulletin, please get in touch with us at email@example.com