The 2016/2017 tax year looks set to be another challenging year for small businesses up and down the country as a result of a number of changes in UK payroll that take effect this April.
From Auto Enrolment to the National Living Wage we take a quick look at the top changes facing payroll for the 2016/2017 tax year.
Payroll year end processing
View our free webinar recording in which we’ll take you through a range of tips to streamline your UK payroll year end processing in Xero. This will include account reconciliation, P60s and P11s. Or checkout this series of videos to take you through an end of year review.
Don’t forget there is nothing for you to do around declaring your final submission of the year, as we’ll take care of that in the EPS we send on the 12th April.
Changes in UK payroll for 2016/2017 tax year
Auto Enrolment and Workplace Pensions
2016 is a big year for Auto Enrolment for the many small businesses that are due to stage this year. Auto enrolment is going to affect all employers over the next couple of years with the smaller businesses starting to reach their staging dates in 2016. Find out how Xero can help with auto enrolment.
The Pensions Regulator estimates that up to 570,000 small businesses are expected to stage for auto enrolment over the next 12 months, adding to the 100,000 who have already staged.
National Living Wage
In July 2015, Chancellor George Osborne announced that workers aged over 25 would be entitled to a “national living wage” from April 2016 affecting up to 2.5 million workers.
Employers will now have to consider a number of different wage bands, all with different rates, relating to different age groups, including the national minimum wage, the new national living wage, and the voluntary rates, if you use them, set by the Living Wage Foundation such as the Living wage and London living wage.
There are tough penalties in place for non-compliance with the National Living Wage, with fines between 100 to 200% of the money owed, up to a maximum of £20,000 per worker. Employers found guilty can also be disqualified as a company director for up to 15 years.
It’s important not to confuse the National Living Wage and the National Minimum Wage. For the National Minimum Wage, the amount is currently set at £6.50, it will rise by 20p to £6.70 on October 1st for 21 to 24 year olds. For 18 to 20, the amount is set at £5.30, under 18 is set at £3.87, and apprentices should be paid a minimum of £3.30. Further information is available at gov.uk
Scottish Rate of Income Tax
If you live in Scotland, you will be required to pay the Scottish rate of Income Tax on your wages, pension and most other taxable income from 6th April onwards. HMRC will identify who’ll be a Scottish taxpayer – employers should only use a Scottish tax code if advised by HMRC. Further information is available at gov.uk
New student loan plans
An alternative threshold for a new type of student loan deduction (Plan Type 2) has been introduced. The new plan type applies to employees who had a home address in England or Wales when they first applied for a student loan and started their course on or after 1st September 2012.
The employment allowance increases to £3000 for the 2016/2017 year. However, there is a restriction which prevents this being claimed by single person companies. These are companies for which the only person paid more than the lower earnings limit (2016/17 £5824) is a single director.
If company has an employee in addition to the director, and the employee is paid above that limit, then the £3000 employment allowance would be available. Further information is available at gov.uk
Employer NI contributions for apprentices
If you employ apprentices, under the age of 25 who earn less than £3,583 per month or £43,000 per year, from 6th April you will no longer need to pay employer’s National Insurance contributions on their earnings.
A new NIC letter H has been created for this scenario and you will need to update the NI details of any eligible employees and select ‘H’ as the category letter. Further information is available at gov.uk
With all these changes in UK payroll there is no better time of year to seek advice from a payroll professional or trusted advisor. Find a certified Xero advisor to help with your business needs.