Essential UK legislative updates for payroll managers

Off-payroll workers and IR35

IR35 relates to off-payroll working and it’s a good place to start, as for the private sector this will mean a new process from April 2021. The good news for any public sector employers is that they’ve already had this in place since 2017, so they’ve gone through the challenge of introducing a new process and ironing out its kinks to make sure it works.

What’s interesting here is that its implications run throughout a business, from HR with initial assessments of new workers, to payroll and finance regarding payment, reporting and returns to HMRC. IR35 applies if the services provided by a worker are being supplied through a limited company or an intermediary to the client. The rules should ensure that this type of worker will end up paying broadly the same amount of tax and NI as if they’d been employed directly as an employee. So from the 6^th of April, all medium and large companies will be responsible for determining the IR35 status of their staff and completing any returns needed. These assessments will be a challenge for employers, but the good news is that HMRC has come up with some assistance in the form of an assessment tool and a factsheet. In addition, you may also be able to get help from your vendor.

When looking at the actual payment rules for off-payroll workers, this will need a determination by operators: do they wish to record the notional values to the payroll, to identify and calculate liabilities, or do they want to actually pay the contractor through the system as well? That process might vary slightly depending on payroll system capabilities and adopted processes, but the common requirements will be pay codes for amounts subject to tax and NI, as well as amounts not subject to tax and NI (e.g. VAT and expenses). In addition, there’ll also be a new identifier required in systems so that when employers report to HMRC through the RTI, they’re identifying the relevant workers as being off-payroll. Now, all this may seem quite scary at first, but as with most new processes, once you get into the flow of things it isn’t as complex as it might seem at the start.

Scottish student loans

The changes relating to these also come in from April and will see applicable Scottish borrowers start to make repayments calculated at 9% of any earnings in excess of the £25,000 threshold. It works in a similar way to the existing student loan plan types 1, 2 and 3, with the difference being that with plan type 4, for Scottish student loans, information will be gained from HMRC notifications – SL1 and SL2 – and operated through systems with the 9% payment threshold.

There’s no change to P60s or P45s with this, so HMRC are not going to add the Scottish student loan as new fields on those schemas, but will use the existing student loan fields instead. They have however issued a new starter checklist, so for any employers who are onboarding new employees, they should embed this into their existing process. That way they can make sure they’re capturing the right information in case someone joins and is liable to repay a Scottish student loan.

National Minimum Wage and National Living Wage

These have both seen modest increases for the new tax year, but it’s particularly important to note that there’s been a change regarding age bands. For the National Living Wage, previous eligibility was from the age of 25, but it will now apply from the age of 23. It’s therefore critical for employers to review different salary scales to ensure they’re compliant with the updates. First and foremost, this will help things to run smoothly and see that people get what they’re due, but also, with HMRC constantly publishing any breaches of the regulations, it lessens the danger of reputational damage (which can occur even though violations are almost always unintentional). The good news here is that many systems have evolved over time to report on any potential breaches, so users should have support to help them manage their compliance in this area.

Veteran NIC

Moving on, employers will be able to claim back the second NI contribution associated with payments to veterans. The challenge with this will be that from the first year employers will actually continue to make the full deductions and will only be able to claim back retrospectively, from April 2022. The full details of this process are still to be defined but it’ll be done through payroll RTI reporting and will likely see the introduction of new data item fields, with vendors able to provide support in terms of how to make the claims. For the current year, the most important thing is record-keeping, so employers will need to prove they’ve taken on any veterans by retaining the right proof of eligibility and the start date of their first civilian employment.

Covid-19 updates

One challenge in this area is the repetitive deadlines for claim applications. For March, for example, employers have to complete submission by the 14^th of April and while HMRC does allow late claims, it’s only when there’s a reasonable excuse (according to their definitions). Basically, err on the side of caution and get applications done as early as possible. Elsewhere there’s the extension of the Coronavirus Job Retention Scheme, until April, giving businesses a bit more confidence and support as the economy starts to reopen. Of course, there are other support mechanisms in place which can be identified via the appropriate government communication channels.

Finding further information

It’s been a tumultuous year and while the coming twelve months will hopefully bring a bit more normality, the ground ahead is likely to feature some further shifting sands. With that in mind, it’s probably never been more important for employers to remain up-to-date regarding their compliance situations and regular reviews of relevant websites.

To help your team during the transition period, view the key topics in this quick-reference Payroll infographic