Payroll Changes for 2024-25

Now that the transition for the new payroll year is complete, and we’ve settled into the new tax year, it’s a good opportunity to examine some of the significant legislative adjustments affecting payroll.

While some areas remained stable, others have undergone significant adjustments. Our newsletter provides detailed insights into these updates, accompanied by links to HMRC’s official guidance for further reference.

 Additionally, we’ve included a section called “Further Insights” featuring valuable payroll-related content beneficial for both our payroll bureau clients and those managing their own payroll.

Should you have any questions or require clarification on these legislative changes, our dedicated team is readily available. You can reach us at payroll2@hlca.co.uk or give us a call at 01382 200055.

Let’s navigate this new tax year together!

Income Tax

Income tax allowances are set by the UK government for England, Wales Northern Ireland, and Scotland (non- devolved). There will be no change to the personal allowances in 2024-25.

Income tax rates for England and Northern Ireland 2024-25. The threshold for additional rate of income tax is lowered.

Income tax rates for Wales 2024-25. Income tax rates and thresholds are currently reflecting those set for England and Northern Ireland.

Income tax rates for Scotland 2024-25. The key changes here are the addition of a further advanced tax band of 45% and increasing the top rate of tax to 48%.

National Insurance

National Insurance Contribution Rates – employees national insurance rates reduced from 12% to 10% on 6^th January 2024, and we now see a further reduction to 8% with effect from 6^th April 2024. Employer rates remain static. These rates are applicable to the whole of the UK.

National Insurance Thresholds

Explanation of terms

LEL – lower earnings limit. Employees do not pay National Insurance when earning below this point.

PT – primary threshold. Employees start paying National Insurance once they reach this threshold.

ST – secondary threshold. Employers start paying National Insurance at this point.

FUST – freeport upper secondary threshold. Employers of freeport employees start paying National Insurance at this earnings point.

ZUST – Investment zone upper secondary threshold. Employers of investment zone employees start paying National Insurance at this earnings point.

UST – upper secondary threshold. Employers of employees who are under 21 pay zero rate up to this point.

AUST – apprentice upper secondary threshold. Employers of certain apprentices who are under 25
pay zero rate up to this point.

UEL- upper earnings limit. All employees pay a lower rate of National Insurance above this point.

VUST – veterans upper secondary threshold.  Employers of employees who are veterans pay zero rate up to this point.

Freeports (known as Greenports or Green Freeports in Scotland)

What are freeports?

Freeports aim to create economic activity – like trade, investment, and jobs – near shipping ports or airports.

There are several freeports now in operation in England, plans for Scotland and Wales are currently in development.

Employers operating within Freeport tax sites will be able to pay 0% employer class 1 NICs on the salaries of new employees working within Freeport tax sites up to the Freeport Upper Secondary threshold (FUST).

What are Investment zones?

The Investment Zones programme, launched at Spring Budget 2023, gives areas a £160 million envelope to catalyse local growth and investment.

There will be eight Investment Zones in England, two in Scotland, and two in Wales.

Veterans

This relief provides a zero-rate of secondary Class 1 National Insurance contributions (NICs) on the earnings of a qualifying veteran for 12 consecutive months from the first day of their first civilian employment after leaving the regular armed forces. This zero-rate can be applied up to the (new) Veteran’s Upper Secondary Threshold (VUST).

This relief is available from April 2021 so that employers can qualify for the relief as early as possible. From April 2021 to March 2022, employers will need to pay the associated Secondary Class 1 NICs as normal and then claim it back retrospectively from April 2022 onwards.

National Minimum Wage

The National Living Wage (NLW) rises to £11.44 from 1 April 2024. This represents an increase of 92 pence or 9.8 per cent.

A significant change we see here is the abolition of the 18–22-year-old rate. The National Living Wage now applies to all workers aged 21+

All increases to NMW apply from the employee’s next pay reference period.

• If you pay your employee on 26^th April 2024 for the 1^st to 30^th April, then the increase applies on 1^st April.
• If you pay your employee on 10^th May 2024 for 16^th April to 15^th May, then the increase applies on 16^th April.
• Many employers choose to increase from 1^st April in the interest of fairness.

NMW is a straightforward calculation for hourly paid employees, but careful consideration needs to be given to those receiving an annual salary, paid per task etc. Also, thought must be given to all elements which affect NMW compliance, such as deductions, what constitutes working time, to name just a few.

It is very easy to get this wrong, so it is essential to ensure that a thorough checking system is in place to avoid falling foul of this legislation.

See further information on this below.

Statutory Payments

Here are the 2024-25 rates and employer recovery information for the main statutory payments.

Statutory Sick Pay

The weekly rate of Statutory Sick Pay for the 2024-25 tax year is £116.75.

The same weekly Statutory Sick Pay rate applies to all employees. However, the amount you must pay an employee for each day they’re off work due to illness (the daily rate) depends on the number of ‘qualifying days’ they work each week.

Recovery -This is a cost borne by the employer, it is not recoverable from HMRC.

Statutory Paternity Pay

The weekly rate of Statutory Paternity Pay for the 2024-25 tax year is £184.03 or 90 % of pay, whichever is lower.

Recovery – 92% is recoverable if the employee and employer’s total Class 1 National Insurance is above £45,000 for the previous tax year. 103% if your total Class 1 National Insurance for the previous tax year is £45,000 or lower.

Statutory Maternity Pay

90% of the employees’ average weekly earnings for the first 6 weeks, then £184.03 or 90 % of pay, whichever is lower for the remaining weeks (up to a further 33 weeks).

Recovery – 92% is recoverable if the employee and employer’s total Class 1 National Insurance is above £45,000 for the previous tax year. 103% if your total Class 1 National Insurance for the previous tax year is £45,000 or lower.

Employment Allowance

Employment Allowance for the 2024-25 tax year is set at £5,000. 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 does 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.

Apprenticeship Levy

The Apprenticeship Levy is a charge that applies to all UK employers who have a pay bill exceeding £3 million. A pay bill is based on the total amount of earnings which an employer is liable to pay Class 1 secondary NICs on.

The Apprenticeship Levy is charged at a rate of 0.5% on an employer’s annual pay bill. Employers are given an annual Apprenticeship Allowance of £15,000. This means that only those employers with an annual pay bill of over £3 million will have to pay, and report, the levy because 0.5% of an employer’s £3 million pay bill is £15,000, which is fully removed by the Apprenticeship Levy allowance.

Further Insights

National Minimum Wage

Following on from the National Minimum Wage update and our recent webinar on this topic, we thought this would be a good opportunity to remind and provide clarity on HMRC’s expectations of employers.

The NMW webinar can be watched here: https://youtu.be/PjRXdRELyBg 

We draw particular attention to Salaried Hours workers, the most common type of worker. These workers are employed for a set number of hours in a year, and their annual salary is divided into 12 (or 52) equal instalments. We all know that a year is not exactly 52 weeks, so it is vital for employers to ensure that the employee has been paid at least the NMW rate (applicable to their age) for all hours worked in the year.

This calculation should incorporate all hours worked, including early starts, late finishes, and all unpaid worked time.

Employers must have a system for monitoring and checking this, towards the end of the calculation year, with any underpayment being paid to the employee in the following pay period.

If we run your payroll, we can do the following to help:

• We will ensure the pay rates in use are at least the current National Minimum Wage rates, and we will apply these rates to the contracted hours.
• We will calculate the annual salary based on 52.14 weeks. We use 52.14 weeks to help you ensure that you are achieving NMW for the hours worked in a year. There are exactly 52.14 weeks in a year, rather than the commonly assumed 52.
• We will ensure that where salary sacrifice schemes are in place, the sacrifice does not lower the employee’s pay to below the National Minimum Wage rate.

What we can’t do:

• We can’t ensure that all hours worked outside of contracted hours have been paid, unless these hours have been reported to us.

There are other things that can potentially cause a National Minimum Wage breach, such as deductions from pay. If you are unsure of your responsibilities in this matter, please rewatch the webinar and read the guidance below.

The National Minimum Wage and Living Wage: Employers and the minimum wage – GOV.UK (www.gov.uk)

Minimum wage for different types of work: Overview – GOV.UK (www.gov.uk)  

If you require assistance, on this topic please do get in touch.

Annual Leave Entitlement

The contract of employment stipulates employees’ annual leave entitlement, but as a minimum, the entitlement is:

• 4 weeks of annual leave
• 1.6 weeks of public/bank holiday leave

This gives a total of 5.6 weeks, regardless of whether the employee is full or part-time.

• For a full-time Monday to Friday worker, this translates to:
  • 20 days annual leave and 8 days of public/bank holiday leave, totalling 28 days per annum.
• If the worker is part-time and works (say) three days per week, then this entitlement will reduce pro-rata to:
  • 12 days annual leave and 4.8 days of public/bank holiday leave, totalling 16.8 days per annum.

Now we know how many weeks holiday the employee is entitled to; we must think about how much a week. When it comes to valuing the holiday, an employee receives a fixed pay, then they will be entitled to (using the full-time example) 5.6 weeks x weekly pay.

However, if the employee works varying hours, or receives bonus, commission, overtime etc, their holiday pay should be based on an average amount paid over the last 52 weeks worked.

Where the employee works some weeks and not others, the unworked weeks are skipped for this calculation and the weeks are counted back to a maximum of 104 weeks.

This exercise can be time consuming and impractical, so a good holiday tracking system is essential.

Important points to note

Rolled up holiday pay is not allowed – this is where the employer adds an amount onto the employee’s hourly rate to cover holiday pay. Holidays must be paid for when taken.

Paying out holidays – the only time it is possible to pay out an accrued amount of holiday pay is when an employee leaves.  An employee can arrange to sell holidays in excess of the statutory amount, this is an arrangement made between the employee and employer. The over-riding principle when it comes to holiday pay is, holiday pay is there to facilitate payment during breaks, it is not for financial gain.

12.07% calculation method is unlawful – however, BEISS are currently reviewing the 52-week calculation method, as it can produce some unfair results. We hope this will result in a system which is fairer and easier to manage.

Salary Sacrifice

A salary sacrifice scheme can create significant National Insurance savings for employers.

A salary sacrifice arrangement is an agreement to reduce an employee’s entitlement to cash pay, usually in return for a non-cash benefit.

As an employer, you can set up a salary sacrifice arrangement by changing the terms of your employee’s employment contract. Your employee needs to agree to this change.

A salary sacrifice arrangement must not reduce an employee’s cash earnings below the National Minimum Wage (NMW) rates. Employers must put procedures in place to cap salary sacrifice deduction and ensure NMW rates are maintained.

Schemes that do not have to report to HMRC for a salary sacrifice arrangement are:

• payments into pension schemes
• employer provided pensions advice
• workplace nurseries
• childcare vouchers and directly contracted employer provided childcare that started on or before 4 October 2018
• bicycles and cycling safety equipment (including cycle to work)

Where an employee gives up a portion of their salary in exchange for one of these benefits, the employee and employer will make savings, because they do not pay tax or national insurance on the sacrificed amount.

Workplace Pensions

The DWP have announced the annual thresholds for the 2024-25 tax year is unchanged, so stays the same as the 2023-24 year.

Contribution rates for employers and employees, where the minimum for a qualifying pension scheme in 2024-25 remains at 8% total contributions (including tax relief) on relevant earnings, of which at least 3% is from the employer.

Childcare Vouchers

The Government closed the Childcare Vouchers scheme to new entrants on 4th October 2018.

Employees currently in the scheme can still exchange salary for child care vouchers subject to the following limits:

A basic earnings assessment must be carried out for all childcare voucher recipients to ensure that the correct exemption limits are being applied.

Employees looking to join Childcare Vouchers for the first time must be told the option is no longer available to them. The Government launched a new scheme called Tax-Free Childcare. Employees must apply for this directly online with HMRC.

HMRC

Here is a link to HMRC’s full guidance.

Rates and thresholds for employers 2024 to 2025 – GOV.UK (www.gov.uk)

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