Recent Budget and Autumn Statement announcements have sought to include a variety of tools to assist and support employers and/ or their staff. In this article we summarise the key changes that employers should be aware of in 2016.
The Scottish Rate of Income Tax
On 6th April 2016 a new rate of tax will come in to affect for people who live in Scotland. The Scottish rate of Income Tax is 10% but presently Scottish taxpayers will pay the same overall rate of Income Tax as people in the rest of the UK.
Scottish taxpayers will be issued with new tax codes prefixed with the letter 'S' (e.g. S1100L). Employers should ensure their payroll software is equipped to deal with the new tax code.
Please note that it is not the responsibility of the employer to identify Scottish taxpayers and HMRC has detailed information for employees about working out which is their main home.
National Living Wage
From 1 April 2016, employers will need to pay staff aged 25 and over the National Living Wage. The National Living Wage is initially set at £7.20 per hour.
Penalties for failure to comply
With the introduction of the National Living Wage the penalty for non-payment will be 200% of the amount owed, unless the arrears are paid within 14 days.
The maximum fine for non-payment will be £20,000 per worker. However, employers who fail to pay will be banned from being a company director for up to 15 years.
National Minimum Wage
For those aged under 25, the National Minimum Wage will continue to apply and from October 2016, the hourly rates will be:
- 21-24 year olds - £6.95
- 18-20 year olds - £5.55
- 16-17 year olds - £4.00
- Apprentice Rate - £3.40
Since 2014, employers have been able to reduce the amount of employer’s National Insurance contributions (NICs) they pay using the ‘Employment Allowance’. The Allowance has previously been £2,000 but from April 2016, the amount will rise to £3,000.
From 6 April 2016, companies with a single director and no other employees, who do not recruit additional staff, will no longer be eligible for the Employment Allowance.
Apprentices under 25
Apprentices aged below 25 under certain circumstances will be given a new NI code of letter H. From 6th April 2016, if you employ apprentices under the age of 25 you may no longer need to pay employer’s National Insurance for them.
From April 2016, employers and payroll software will be tasked with the collection of two Plan types:
- Plan 1 - threshold of £17,495 per annum. These loans will be in respect of Scottish or Northern Irish students or have been taken out pre- September 2012 by English or Welsh students.
- Plan 2 with a threshold of £21,000 per annum. These loans will have been taken out post-September 2012 by English or Welsh students only.
The responsibility for repaying the correct loan amount rests with the former student. However, the payroll function will arrive at the student loan deductions and these will be dependent upon the right Plan being identified.
Real Time Information and 'Micro Employers'
Real Time Information (RTI) modernised how employers shared payroll information about their employees with HMRC and the regularity with which they did it. Rather than reporting to HMRC just once a year on paper, under RTI employers must submit PAYE information electronically to HMRC ‘on-or-before’ the date they paid their employees.
In April 2014, HMRC granted existing micro employers (those with 9 or fewer employees) an easement to report on or before the last payment day of the tax month.
From 6 April 2016 this easement is no longer available. All employers will have to submit their RTI on-or-before the date they pay their employees. This means that if you pay your employees weekly you will have to run your payroll weekly and send your submissions to HMRC weekly.
Benefits in kind
Abolition of the £8,500 threshold
The £8,500 reporting threshold has been abolished and as a result, form P9D for reporting benefits that were not excluded from tax and Class 1A National Insurance is obsolete. This is designed to provide simplicity for employers as there will be only the P11D to report benefits.
However, employers with staff on low earnings such as part-time staff, care and support staff, or those on zero-hour contracts and ministers in the Roman Catholic Church will see an increase in the Class 1A National Insurance bill. Employees are unlikely to suffer any tax given that the Personal Allowance is £11,000 for 2016/17, unless they have other income.
Payrolling of Benefits in Kind
From 6th April 2016, HMRC will give employers the option to put benefits in kind through the payroll. Consequently, there will be no need to complete P11Ds and the tax and National Insurance will instead be collected in real time through the payroll by adding a notional value to the employee’s pay. P11D(b) forms will still be completed that show the total benefits and expenses provided; whether or not they’ve been put through the payroll.
At the moment, there are certain benefits that you won’t be able to payroll:
- Vouchers and credit cards
- Living accommodation
- Interest-free and low-interest (beneficial) loans
Before using the service you’ll need to ensure your payroll software allows you to collect the right amount of tax on benefits and expenses. You need to align your payroll software and register to payroll by 5 April 2016 using an online form (HMRC has not given Tax Agents such as your accountant access to do this on behalf of their clients). You won’t be able to register after this date for the 2016/17 tax year as HMRC can’t currently process changes in-year.
Until now, an employer who reimbursed business expenses for their employees had two choices:
- Report them on a P11D and then the employee could make an expense claim if the expenditure was incurred wholly, exclusively and necessarily in their performance of their duties
- Apply for a Dispensation to remove the need for P11Ds and resultant expense claims
In either instance, no tax liability would arise.
From 6 April 2016, almost all of the expenses or benefits that dispensations might have covered have been given an exemption from being reported. Dispensations will consequently cease to exist also. The exemption will apply to expenses or benefits that the employee would have been eligible for tax relief for, had they met the costs themselves.
Employers will still need to have a system in place for checking that their employees are incurring and paying amounts in respect of exempt expenses, and that a deduction would be allowed for those expenses. But the expenses exemption should, in theory, reduce the amount of administration for employers.
We can help
If you would like to concentrate on running your business, we can assist you to comply with your duties as an employer.
Our payroll software is RTI-compliant and we are able to offer our clients access to a pension scheme that is ready for auto enrolment. Needless to say, we can manage your day-to-day payroll requirements; even if your employees are on sick, maternity or paternity leave. We’ll also handle the payroll year end for you, including any benefits and expenses forms due.
Contact us today to find out more about our services for employers and how they can benefit your business.
By Jo Nockels
Last updated March 2016
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.