HMRC has outlined its expectations of what software producers should deliver in payroll products for 2020/21. Kate Upcraft outlines what is new and where questions remain.
The most topical change, which payroll software users have been requesting for the last two years, is a marker in the Full Payment Submission (FPS) to indicate a ‘deemed employee’. This would cover a director of a personal service company caught by the off-payroll rules.
Mixing in deemed employees with actual employees is really not a great idea. HMRC can’t see that these records are different and that certain HMRC internal processes need to be turned off for deemed employees, most particularly the student loan routines.
Although the fees related to the deemed employee are treated as NIC’able earnings, the decision was taken back in 2017 that directors of personal service companies would continue to pay their student loan contributions via self assessment.
Up until April 2020 when the new marker is introduced, HMRC will continue to issue student loan notices inappropriately to deemed employees engaged by the public sector, and expect the engager to ignore them and not apply them.
It is also helpful to have a marker indicating a deemed employee so that the engager can exclude them from their own internal routines that don’t apply, such as statutory payments, national minimum wage, auto enrolment and gender pay gap reporting.
Restriction of the employment allowance
The unexpected consequences of the restriction of the employment allowance (EA) were covered by Samantha Mann.
From 6 April 2020, eligibility for the £3,000 EA will be restricted to PAYE schemes (or a group of PAYE schemes if they are connected) with an employer national insurance liability of less than £100,000 for the year ending 5 April 2020.
Eligible employers will have to complete additional fields on the Employer Payment Summary to confirm whether they have received any de-minimis state aid, and if so whether the £3,000 EA being claimed would breach the relevant threshold for their sector.
Reporting of the de-minimis state aid already received will be in Euros. The UK has committed to retaining state aid funding after the UK leaves the EU. A new generic notification message will be used to indicate that the claim has been rejected and from 2020 onwards an EA claim will have to be made every tax year: it will not automatically roll over as it does now.
Class 1A NIC in real-time
Employer-only NIC on the excess of a termination payment over £30,000 will be introduced in April 2020. Class 1A NIC on cash packages will be calculated in-year and reported on the FPS and paid over alongside the Class 1 NI. Class 1A on non-cash packages will continue to be reported after year-end.
Statutory parental bereavement pay (SPBP)
The new statutory paid leave for parents who lose a child under the age of 18 will necessitate a new field to be added to the FPS and to the EPS. This is to facilitate recovery of the pay made to employees at 92% or 103% of the amount paid, matching the recovery rules for other statutory payments.
Ultra-low emission vehicles
From 6 April 2020, new tax bands are introduced for company cars with emissions in the 0-75g C02/km range. These 11 new tax bands are based on zero-emission mileage range of those vehicles and require new fields will be added to the P46(car) and to the FPS for cars that are payrolled.
Student loan thresholds
These payment thresholds have been confirmed for 2020 as follows:
- Plan 1: £19,390
- Plan 2: £26,575
- Postgraduate loan: £21,000
Deductions will remain at 9% of pay over the threshold for plans 1 and 2 and 6% of pay for postgraduate loans
The final significant change to payroll for 2020/21 is in respect to holiday pay, as I explained last month. Whilst this change doesn’t change RTI reporting, its impact will be significant.
Workers will be entitled to holiday pay adjustments that consider the average hours and pay over 52 weeks prior to the holiday week, rather than over 12 weeks as now.
Since the Court of Appeal ruling in Flowers v East of England Ambulance Trust it has been confirmed that regular and settled voluntary overtime must be taken into account in holiday calculations as well as commission, bonuses and guaranteed overtime.
Given that this calculation will require the employer to look back into the prior tax year, I would encourage all employers and agents to find out if any functionality to do this will provided by your payroll software.
If your payroll software will not provide that information, explore what internal process changes you may need to make to support this new holiday pay calculation.