Payroll and Pension Update

Wednesday, March 28, 2018

Dear Client, We should like to take this opportunity to highlight certain changes taking effect from 6th April 2018. 


Most of the changes will take place automatically and do not require any action by you but may affect your company and related employee costs.

Additionally, for your information we have highlighted some of the more pertinent areas of change happening in payroll in the near future so that you are aware of subjects that may affect your company and/or employees.
 

Basic Personal Tax Allowance

This increases from £11,500 (tax code 1150L) to  £11,850 (1185L) from 6th April 2018.
 

Tax Rates

UK basic tax rate 20% on annual earnings above the PAYE tax threshold and up to £34,500
UK higher tax rate 40% on annual earnings from £34,501 to £150,000
UK additional tax rate 45% on annual earnings above £150,000
 
Different thresholds apply in Scotland; starter tax rate 19% above PAYE tax threshold up to £2,000, basic rate of 20% up to £12,150, intermediate rate of 21% up to £31,580, higher rate of 41% to £150,000 and a top rate of 46% on annual earnings above £150,000.
 

Class 1 - Employee status National Insurance Contributions (NIC)

The rate of NIC remains unchanged at 12% employee for earnings above the Primary Threshold (then 2% above Upper Earnings Limit) and 13.8% employer NIC .
 
However, the thresholds have changed slightly.  Broadly, employee and employer NIC is payable once earnings exceed £8,424 (was £8,164) up to £46,350 (previously £45,000).  Gross pay above this will attract employee NIC at 2% and employer NIC continues at 13.8%.
 
Earnings for employees aged below 21 do not attract employers NIC  (up to gross pay of £46,350).

Employees aged over state pension age do not pay NIC (but employer's NIC still applies).  Those staff under 25 years old on recognised apprenticeship schemes will not attract employers NIC unless their pay is above £45,350 pa.
 

Employment Allowance

The Employment Allowance was introduced in April 2014 to support businesses by cutting the cost of employment where employers NIC could be claimed back, up to a maximum of £3,000.  The allowance remains at a maximum of £3,000 and can only be claimed where there have been employees on the payroll (not sole director payrolls).
 

Statutory Payments

Statutory Sick Pay (SSP) increases to £92.05 per week (from £89.35).  Employers' can not recover payments of SSP anymore.

Statutory Maternity Pay (SMP) is payable at 90% of average earnings for the first six weeks and at a lower rate for up to 33 weeks.  From April 2018, this lower rate increases to £145.18 per week(from £140.98).
 
Recovery of SMP for employers is either; 100% + 3% small employer compensation or
92% of the SMP if the employer's NIC liability was over £45,000 in the previous tax year.
 

Student Loan

Plan 1    9% on earnings over £18,330 per year
Plan 2    9% on earnings over £25,000 per year
 

National Minimum/Living Wage Rates increase 

Category of worker 1 April 2018 1 April 2017
  Hourly rate Hourly rate
Aged 25 and above (national living wage rate) £7.83 £7.50
Aged 21 to 24 inclusive £7.38 £7.05
Aged 18 to 20 inclusive £5.90 £5.60
Aged under 18 (but above compulsory school leaving age) £4.20 £4.05
Apprentices aged under 19 £3.70 £3.50
Apprentices aged 19 and over, but in the first year of their apprenticeship £3.70 £3.50
 

Pension Contributions, the Workplace Pension and Automatic Enrolment

Employers will be required to increase the amount of contributions made into their employees scheme in two phases.  It may be worth reminding staff about this important update.
 
For most businesses, this will mean employer contributions will rise.  The first phase in April 2018 will result in a total minimum contribution increase from 2% to 5% where the employers must contribute at least 2% (currently 1%) and employee  contributions will rise from 1% to 3%. 
 
The second phase  is to be in place by 6 April 2019.  The total minimum contribution will rise to 8% (employer minimum contribution 3%).
 

Ongoing pension duties

Payroll must be continually assessed (if Sadler Davies & Co process your payroll, this is done automatically).  Should an employee become eligible on age or earnings, (broadly reaching 22 years of age and earning £10,000 or over) they must be automatically enrolled into a workplace pension (set up by the employer).

Every three years you must put certain staff back into a pension scheme. This is called ‘re-enrolment’.
 

Re enrolment

As well as continuing to assess your staff each time you pay them, every three years you will need to re-enrol staff who have left your pension scheme and who meet certain criteria.
 
1. Choose your re-enrolment date: from a six month window starting 3 months before the third anniversary of your staging date.
 
2. Assess your staff: on your chosen re-enrolment date, you’ll need to assess certain staff to work out if you need to put them back into your pension scheme.  If we process your payroll, this will be done within the payroll processing service.
 
You must assess staff who have:
  • asked to leave (opted out of) your pension scheme
  • left (ceased active membership of) your pension scheme after the end of the opt-out period
  • stayed in your pension scheme – but chosen to reduce the level of pension contributions to below the minimum level 
You can leave out from your assessment any staff member who, on your re-enrolment date:
  • is already in the pension scheme you use for automatic enrolment (a qualifying scheme)
  • is aged 21 or under
  • is at state pension age (SPA) or over
  • has not yet had an automatic enrolment date (met the age and earnings criteria for automatic enrolment, or who has been postponed) 
Any staff member who left your automatic enrolment pension scheme more than 12   months before your re-enrolment date and is:
  • aged between 22 up to State Pension Age
  • and earns over £10,000 a year, or £833 a month, or £192 a week
  • must be put into a pension scheme and you must both pay into it.
3. Write to staff to tell them you've put them back in a pension scheme.  If Sadler Davies & Co process your payroll, we can assist with this.
 
4. Complete re-declaration of compliance to The Pensions Regulator.
 
Your duties will vary depending on whether you identify that you have staff to re-enrol, or whether you have no staff to re-enrol.
 
Either way, a re-declaration of compliance is required to tell The Pensions Regulator how you have met your duties.  If this was carried out by Sadler Davies at the original staging date, we will continue  to undertake this duty on your behalf unless you indicate otherwise.
 

Spot check on employers: The Pensions Regulator steps up inspections in compliance drive

Spot checks are being carried out on employers across the UK to make sure they are complying with their workplace pensions duties.
The inspections are part of The Pensions Regulator’s (TPR) ongoing enforcement activity to ensure employers are meeting their duties correctly.
 

Childcare

The government is introducing new ways to help parents/carers with childcare costs.  The current childcare voucher scheme will close to new entrants from April this year.
Instead, eligible parents will need to use the governments new tax-free childcare (TFC) scheme.  The voucher scheme currently administered through payroll will continue to run for parents already on it.  Tax Free Childcare will eventually replace the existing childcare voucher scheme.
 
When an employee decides to join TFC, they will need to provide the employer with a written document stating they wish to leave the employers voucher scheme and use Tax Free Childcare.
 
TFC works in the same way as a savings account with eligible parents paying money in from their net pay.  For every 80p they pay in, the government adds 20p.  Parents will need to pay in £8,000 to reach the maximum government contributions of £2,000 per child per year.
 
To learn more about the changes, answer employee questions and to assist parents with childcare choices, please visit: https://www.childcarechoices.gov.uk/
 

Itemised payslips

An update to the Employment Rights Act 1996 will come into effect from 6th April 2019.  The amendment requires an itemised pay statement to contain information regarding the number of hours worked by the employee for which they are being paid, but only in situations where the employees pay varies as a consequence of the time worked.
 

Holiday

All workers are legally entitled to a minimum of 5.6 weeks’ paid annual leave. For a full-time worker working a five-day week, this totals 28 days’ holiday leave.
Holiday entitlements normally include bank holidays that take place during the holiday year. Usually, there are eight bank holidays, leaving 20 other days to take throughout the year.
 
Why is 2018 different?
In 2018, Easter is falling early. Good Friday is on 30th March and Easter Monday is on 2nd April.
Employees with a holiday year running from 1st April 2018 to 31st March 2019 will not have a Good Friday bank holiday because it falls in the previous holiday year.
So, staff with an annual holiday entitlement of 20 days’ plus bank holidays will only be contractually entitled to 27 days’ holiday in 2018/19—one day short of the legal minimum.
 
So what do you need to do?
To avoid breaching the working time rights of the employees, affected employers in England and Wales will have to top up their workers’ holiday entitlement for the 2018/2019 leave year.
As a minimum, you must give 5.6 weeks’ holiday. If you already give additional company holiday leave to employees (32 days to all employees, for example) you don’t need to give any extra holiday.
 
What about the 2017/18 leave year?
People with April-March holiday years could receive an extra day’s holiday in March 2018 because Good Friday falls early, but it depends on what their contracts say.
Where the contract states the worker is entitled to 20 days’ plus eight bank holidays and lists the eight bank holidays, there will be no right to take the second Good Friday bank holiday.
Or, if the contract states the 20 days’ plus bank holidays—but neither totals nor lists the bank holidays—the worker will be entitled to 29 days’ holiday in the 2017/18 leave year.
Finally, if there’s a complete contractual holiday cap of 28 days, holiday leave will be unaffected.
 

New rules on Termination payments

Some payments made in connection with the termination of an employment will now be chargeable to income tax and Class 1 NIC as general earnings, and will not benefit from the £30,000 threshold with effect 6th April 2018.
 
Payments or benefits paid in connection with the termination of a person’s employment will be split into two elements;
 
  1. Post Employment Notice Pay (PENP) represents the amounts of basic pay the employee will not receive because their employment was terminated without full, or proper notice being given.  PENP is calculated by applying a formula to a total amount of the payment or benefits paid in connection with the termination of an employment.  
  2. The second element is the remaining balance of the termination payment, or benefit, which isn’t PENP subject to the £30,000 tax exemption.
PENP calculations should not be applied to statutory redundancy payments.

As an employer you will be required to apply the PENP formula to the total amount of relevant termination payments, or benefits. You should operate PAYE to deduct income tax and Class 1 NICs from the amount of PENP from 6 April 2018. You should then apply the £30,000 exemption, where applicable, to the second element of the relevant termination payment.  
 
Please contact Sadler Davies & Co should this situation occur for further details/formula and/or assistance with the calculation.
 


General Data Protection Regulation (GDPR)

On 25th May 2018, the GDPR will be implemented in the UK.  It will change the way in which businesses and organisations hold and manage personal data.  The GDPR replaces the Data Protection Act 1998.  This briefing  broadly outlines the effect that GDPR will have on employers. 
 
Previously, employers could rely on general consent policies to allow them to process personal data.  Such consent policies could, for example, be included in employment contracts.  This may no longer be sufficient under GDPR and employers will now have to choose a lawful basis to enable them to process personal data.  This requirement will not be limited to current employees but will include [and will not be limited to] recruitment, training, development, remuneration, benefits and eventually termination.
 
Much of this data will be shared with third parties (e.g. payroll providers).  All of this information must be carefully considered so as to ensure that the data is obtained, retained, shared and updated properly and responsibly.   All data management must be thoroughly documented should evidence of compliance be requested.
 
Under the current law, employers are required to provide employees and job applicants with a privacy notice setting out certain information.  Under the GDPR, employer's will need to provide more detailed information, such as:
  • How long data will be stored for;
  • If data will be transferred to other countries;
  • Information on the right to make a subject access request; and
  • Information on the right to have personal data deleted or rectified in certain instances
The new regime will increase the powers of employees to ensure the protection of their personal data held by their employer and third party payroll providers in a number of areas;
  • Privacy: consent for data processing are being strengthened
  • Access to data: current and past employees should be able to easily request and obtain the data held about them
  • Right to be forgotten: employees will have the right to request that their personal data is removed (subject to some exemptions)
Other main areas to note are;
  • The GDPR now includes significant penalties to employers who breach GDPR (including fines at 4% of annual turnover).
  • There is a mandatory breach reporting requirement under GDPR, to notify the data protection authority within 72 hours.  Where the breach poses a high risk to the rights and freedoms of individuals, those individuals will also have to be notified.
 
Further information on GDPR will be provided to you at the end of April 2018 which will be more specific to your requirements.
 
The Information Commissioner's Office (ICO) have the following links to help;

https://ico.org.uk/for-organisations/guide-to-the-general-data-protection-regulation-gdpr/
https://ico.org.uk/media/1624219/preparing-for-the-gdpr-12-steps.pdf
https://ico.org.uk/for-organisations/resources-and-support/data-protection-self assessment/getting-ready-for-the-gdpr/
 

Iris Openspace

Due to the GDPR regulations (mentioned above) which are to be implemented by 25th May 2018 we intend to exchange sensitive and confidential information with our clients via Iris Openspace. This is a safe, simple and secure tool for us to share documents with you and obtain client approval electronically on tax returns. Personal documentation that we request from our client's can also be uploaded and shared through Iris Openspace so will be a valuable tool for both us and our clients. Please look out for more information as we will guide you through registering for the service and in turn getting used to using this as our way of exchanging personal information.
 

Making Tax Digital for VAT (MTD for VAT) 

From April 2019 VAT registered businesses with a taxable turnover above the VAT threshold, currently £85,000, must keep their VAT records digitally and submit the VAT return through compatible software. VAT returns will be compiled by pulling data from digital records and the entering of figures into the VAT return through HMRC's online portal will not be an option.
 
The first quarter will commence on or after 1st April 2019 for compulsory filing through MTD for VAT.
 
HMRC have said that it will accept spreadsheets for digital record keeping purposes, however the spreadsheets should be able to report the required MTD data to HMRC IT systems electronically. This is likely to be done by the use of bridging software and HMRC is working closely with software providers to ensure the availability of a range of bridging products at a variety of different price points.
 
MTD for other taxes will not be mandatory before 2020.
 
Further guidance can be found on www.gov.uk.
 
In view of MTD we are trialling software for bookkeeping purposes, namely Xero and Sage, which should satisfy all the MTD requirements and streamline your bookkeeping and accounting processes.  If you may be interested in this then please get in touch with the office to discuss your individual requirements. Further information on this will be provided to you in the near future and we will look to satisfy all of HMRC requirements and our client's needs in the best way possible and we encourage an openminded approach to all these significant changes that are being introduced by the Government.
 

Requirement to Correct and Failure to Correct

Under proposals which are due to become law by the end of the year, the government’s ‘Requirement to Correct’ regime obliges taxpayers with such undeclared past UK tax liabilities to correct their UK tax affairs by 30 September 2018, or face tough new penalties.
The new rules mean that taxpayers could face stringent penalties based on the value of the assets, as well as the tax due.

This builds on a new criminal offence for tax evasion introduced in 2016 for those who fail to declare offshore income or gains.

HMRC now has access to financial information regarding taxpayers from more than 100 overseas jurisdictions, including information relating to overseas interests.


Failure to Correct penalties 

Where individuals fail to disclose overseas liabilities before the 30 September 2018 deadline, strict penalties for failing to correct will apply. These start at 200% of the underpaid taxes, but may be mitigated down to a minimum of 100% with full cooperation and disclosure. It will not matter whether the historic liabilities arose as a result of human error, careless behaviour or tax fraud, since the penalty imposition applies to the Failure to Correct (FtC) rather than the original offence(s).