Payroll Update 2020/2021
New Tax Year Payroll Update
As we approach the start of the new tax year we thought it would be beneficial to highlight some of the key changes that will affect your payroll.
Personal Allowances and tax bands
The personal allowance will remain the same at £12,500 per annum, the standard tax code will also remain unchanged at 1250L. This means that earnings under £240.38 per week or £1,041.67 per month will not attract any tax for individuals with this tax code.
There have been no changes to any other tax bandings or rates.
National insurance thresholds
One welcome announcement in the Budget was the increase in the primary threshold for national insurance to £9,500. This means that income below £9,500 will not be subject to any employee national insurance contributions.
Directors salaries
As part of many tax efficient remuneration strategies, director’s salaries are generally aligned with either the national insurance primary threshold or the personal allowance.
However, this year the standard threshold has been set at £8,788 rather than the primary threshold of £9,500. This means that employers national insurance will be due on any income above £8,788.
We would therefore suggest that those who wish to avoid any national insurance becoming payable pay salaries of £732 per month (£169 per week).
For those aligned with the personal allowance salaries will remain the same at £12,500 per annum, £1,041.67 per month.
National Insurance Employment Allowance
Some welcome news for businesses was the fact that the employment allowances is to be increased to £4,000 per annum for the new tax year from the current £3,000.
However, going forward businesses will have to actually claim this allowance rather than receiving it automatically. In addition, some larger businesses will be unable to claim the allowance going forward as a restriction has been introduced for those businesses whose employers national insurance bill was more than £100,000 in the year ending 5 April 2020. The £100,000 threshold is the total for all related companies.
The employment allowance will also be classified as de-minimus state aid therefore if any other de-minimus state aid has been received it is important to ensure this does not take the company over the permitted limits (200,000 euros).
National minimum wage (NMW) increases
Please note that the NMW increase will be implemented from Week 1 (10 April 2020), Month 1 (30 April 2020). The new rates per hour are as follows:
Employees:
25 and over £8.72 Previously: £8.21
21 to 24 £8.20 £7.70
18 to 20 £6.45 £6.15
Under 18 £4.55 £4.35
Apprentices £4.15 £3.90
Please note that the apprenticeship rate only applies to apprentices aged under 19 unless they are in the first year of their apprenticeship.
Apprentices aged 19 or over in their second year of apprenticeship must receive the NMW that their age entitles them to.
Please note that it is contrary to government legislation for employers to pay workers less than the NMW, HMRC can raise penalties for failure to comply of up to £20,000 per employee.
Auto enrolment pension contributions
The minimum contributions into a workplace pension scheme are not increasing from April 2020. The contribution rates will remain the same for both employees and employers.
Employer minimum contribution 3%
Employees minimum contribution 5%
Total minimum contribution 8%
Note employees will receive a tax saving equivalent to 1% which reduces their overall cost to 4%.
Statutory Payments
Statutory Sick Pay: Increases to £95.85 per week.
Statutory Maternity Pay: Standard rate increases to £151.20.
Statutory Paternity Pay & Shared PP: Increase to £151.20 per week.
Statutory Parental Bereavement
Leave and Pay (SPBP) Entitlement is for up to 2 weeks at £151.20 per week
In addition, the recent budget has announced some changes to statutory sick pay (SSP) to help support businesses and people impacted by COVID-19. SSP will be available to all individuals diagnosed with COVID-19 and those self-isolating in line with government advice. SSP will also be available from day one instead of day four for affected individuals.
The government is bringing forward legislation to allow small and medium sized employers (SME’s) to reclaim SSP. The criteria to reclaim is as follows:
- The refund will cover up to two weeks’ SSP per eligible employee who has been off work because of COVID-19.
- Employers with fewer than 250 employees will be eligible - this will be determined as of 28 February 2020.
- Employers will be able to reclaim expenditure for any employee who has claimed SSP (according to the new eligibility criteria) as a result of COVID-19.
- Employers should maintain records of staff absences, but employees will not need to provide a GP fit note.
- The eligible period for the scheme will commence the day after the regulations on the extension of SSP to self-isolators comes into force.
- The Government will work with employers to set up the repayment mechanism for employers as soon as possible.
Coronavirus Job Retention Scheme
In addition the chancellor announced the Coronavirus Job Retention Scheme on Friday. Under this HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. HMRC are working urgently to set up a system for reimbursement and as yet we have very limited details of the practicalities. We will update our website as more information becomes available https://www.cliveowen.com/coronavirus-financial-support-for-businesses/
If you want to discuss any of the above changes then please do not hesitate to get in touch with your main contact at the firm or contact us here.
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