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All of the Budget-related payroll changes in one place (not that Rishi waited until the Budget to announce much!)

27th Oct 2021
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How did the Budget affect payroll?  And did we learn anything on the day?

Every year the Payroll Industry sits down expectantly to listen to the Budget - sometimes with nervous anticipation about what is going to change and sometimes in a state of panic that there will be a surprise.

How many Budgets have we anticipated a potential change in pension taxation?  And how many consecutive Budgets have we been spared that upheaval?

This Budget was even more anti-climactic in payroll terms, given that everything has been announced in advance.

Even the Deputy Speaker, Dame Eleanor Laing stated, “You have announced too much of it already” and that she looked forward to hearing “the remainder of your announcements”.

Ouch!

But spot on - from a payroll angle, everything was announced in advance.

Others can discuss the impact of the changes to duty on alcohol, but this is the more sober state of play from a payroll perspective:

National Minimum/Living Wage increases
Remembering that last April the age for earning the National Living Wage was reduced to age 23 and over.

The rates have changed as below:

National Living Wage (23 and over) from £8.91 per hour to £9.50
National Minimum Wage (21-22) from £8.36 per hour to £9.18
National Minimum Wage (18-20) from £6.56 per hour to £6.83
National Minimum Wage (under-18s) from £4.62 per hour to £4.81
The Apprentice Rate from £4.30 per hour to £4.81

The NMW/NLW rates increase generally increase each year, so there is nothing fundamentally different next year.

Tax thresholds
The Personal Allowance is frozen at £12,570 until April 2026.

The Higher Rate Threshold will remain at £50,270.

National Insurance - Health and Social Security Levy
The changes to national Insurance have been flagged well in advance.

The Health and Social Security Levy will increase Class 1 Employee and Employer and Class 1A Employer National Insurance rates by 1.25% across the board (i.e. this will apply below and above the UEL).

In practice, this will mean a headline rate of 13.25% Class 1 Employee contributions in the 2022/23 tax year, whereas in the 2023/24 tax year the Health and Social Levy will be separately split out on payslips as a separate “tax”.

In the interim (i.e. from next April), a payslip message will be needed to highlight the change to employees.  Suggested wording is awaited from HMRC.

Aside from the headline NI changes from the 2023/24 tax year, the Levy will have implications for payroll in terms of things like:

  • P11Ds, Benefits in Kind, Payrolling of Benefits and IR35
  • P60s, P45s and P11D forms
  • Attachment of earnings/Court Orders

These changes and impacts are why the Levy is not being split out from next April: they will take time to change these across payroll software.

National Insurance - Freeports
Freeports - from 6 April 2022 there will be a number of new NI Categories for employees based in the newly created Freeports which will result in NI relief.   These will be F, I, S and L and will be the equivalent of the current categories A, B, C and J.

The relief will be 0% Secondary Employer’s NI between the Secondary Threshold (ST) and the new Freeports Upper Secondary Threshold (FUST) of £25,000.

The high level requirement is that the business premises must be in a freeport zone and the employee must spend at least 60% of their time working in that zone. 

There are a number of calculation questions to be ironed out around this, such as, what happens if someone works both in and out of a freeport?  These are still being worked on - but with changes required to the FPS from 6 April hopefully these will be resolved in the next month or two.

National Insurance - Veterans

Although in practice the new NI Category V will come into effect from 6 April 2022, the NI relief on employing (military) veterans already applies in this tax year.

Secondary Employers Class 1 relief of 0% applies between the ST and the new Veterans Upper Secondary Threshold (VUST) of £52,070.

So, from 6 April there will be a new NI letter and the FPS will be amended to enable reporting.

However, from 6 April, there will also be the ability to retrospectively calculate NI in respect of these employees for this tax year (i.e. 2021/22) and make a retrospective FPS adjustment for this tax year.

But be aware that not all payroll softwares will necessarily provide the ability to make that retrospective calculation in their software and therefore HMRC will also allow a manual claims process.
 

SSP Waiting Days
Technically, we still don’t know the definitive answer to this one - but, as it stands, the temporary removal of Waiting Days for Statutory Sick Pay for COVID cases will lapse at midnight on 24 March 2022.  

Things to keep an eye on:

Payrolling of Benefits
It doesn’t look like there is going to be an extension of Payrolling of Benefits in respect of Loans and Accommodation as nothing has been mentioned about these, but worth keeping an eye out for any future updates.

State Aid for Employment Allowance purposes
The Subsidy Control Bill published on 30 June 2021 is proposing changes to State Aid funding post-Brexit that could impact the Employment Allowance.  However, given that the Bill could be significantly amended as it progresses through Parliament and most employers fall outside of State Aid sectors it is probably just keeping a note to have a watching brief.

If you spent last April frantically updating all of you clients NMW/NLW pay rates or if you are simply looking for a faster, more efficient fully cloud payroll solution, why not find out more at KeyPay.