Important changes to payroll and pensions from April 2020

National Minimum Wage

From April 1^st 2020 the minimum rate you must pay your employees rises.

	25 +	21 – 24	18 – 20	Under 18	Apprentice
Current	£8.21	£7.70	£6.15	£4.35	£3.90
Apr-20	£8.72	£8.20	£6.45	£4.55	£4.15

The new rate will apply to the next pay reference period that begins after the date. This year the 1^st of April is a Wednesday so if your pay reference period starts on a Monday the wage increases will start from tax week 2. If you pay a week in arrears the wage increases will start from tax week 3.

Pension Contributions

The minimum contributions that need to be deducted and paid over to your auto enrolment pension scheme have not altered from 2019.

Payslip Legislation reminder

A reminder that from 6 April 2019 there was a change made requiring you to provide itemised payslips to all workers.

If employees are paid by the hour or rate then all payments should be itemised separately. You need to show the rate of pay plus the variable (ie number of hours).

Termination payments

From 6 April 2020 Class 1A employer national insurance contributions will be due on termination payments over £30,000. This will be collected  under RTI and you must ensure that your software is compliant. This is the additional rule which has been introduced to simplify the tax and national insurance rules surrounding termination payments. From April 2018  any payments made in lieu of notice (PILON) will be taxed as earnings regardless of whether they were contractual or not.

Notice payments should be calculated using the post-employment notice pay (PENP) formula.

Broadly – HMRC want you to determine what you would have paid in tax and NI if the employee had not left and apply it to any termination payments.

The formula you should use is (BP x D / P) – T

BP = the employees basic pay for the last pay  period before notice was given. (This excludes bonuses, overtime and benefits in kind)

D = the number of days in the period which includes the last working day to the notice period expiry date.

P = the number of days in the last pay period.

T = the amounts paid on termination (other than holiday pay and termination bonuses) that are  already taxable as earnings

 

Example

You dismiss a worker who earns £3,000 a month and has a 4 month notice period. You agree a termination package of £18K. This amount does not include any redundancy.  Leave Date 30 Nov.

The PENP is (3,000 x 121 / 30) = £12,100 – £18,000

£12,100 is subject to tax and nics and £5,900 is tax free.

Optional Remuneration Arrangements (OpRA)

Be careful not to fall foul of the new legislation.

For example: If you have provided mobile phones to all your employees there is currently no benefit in kind charge. However, if you give just one of your employees the option to use their own phone and receive a cash allowance towards the cost you have now deemed to have entered into an Optional Remuneration Arrangement and you will have to assess all the phones you provided  because they are now classed as a benefit. You would need to determine the difference between the benefit offered and the cash equivalent.

www.gov.uk/government/publications/optional-remuneration-arrangements

Employment Allowance

The Employment Allowance is being withdrawn for employers, including connected companies, who have an employer national insurance liability of £100,000 or more in 2019/20.

We have a separate leaflet explaining all the changes to the employment allowance.

Off-Payroll Working Rules (IR35)

The off -payroll working rules were designed to ensure that those working through a Personal Service Company (PSC), who might have been regarded as employees if they had been engaged directly, would pay the same tax and NICs as if they were employed.

In April 2017, under the new rules, the public      sector directly engaging a workers PSC were   required to deduct tax and Nics before making any payments. If the worker was engaged through an agency, the agency was liable to deduct the tax and Nics. Whomever paid the workers PSC was also liable for employer Nics.

From April 2020 the rules have been extended to medium and large companies within the private sector. Small companies are excluded from the off- payroll working rules.

A small company is one who satisfies two of the following criteria: a small incorporated company with fewer than 50 employees, annual turnover of less than £10.2m or total balance sheet assets of less than £5.1m.

A small unincorporated company with an annual turnover of less than £10.2m.

Please contact us if you have any concerns how this may affect your treatment of  contractors as you will be required to check the employment status of your contractors to determine whether they should be included on your FPS to HMRC. If you get the determination wrong you will be liable for all the tax and NICs due.

Statutory Parental Bereavement Leave and Pay (SPBP)

This is a new statutory allowance for parents who have lost a child. The payment will be processed in the same way as Paternity pay, granting two weeks statutory leave and pay, and reclaimed from HMRC in the same way too.

Holiday Pay Average.

From April 2020 you will be required to increase the holiday pay reference period from 12 weeks to 52 weeks, or if employed less than 52 weeks the number of weeks employed.

Employment Law change to when you must  provide a new employee a written statement of terms or contract.

Presently you must provide a new employee with a written statement of terms within two months of commencing employment but from April 2020 all new employees and workers will have the right to a written statement of terms of employment from their first day of employment.

DON’T FORGET TO CHECK FOR THE CHANGES RESULTING FROM THE RECENT BUDGET. FIND OUT MORE.

If you require any additional information about these topics then please contact The Payroll Team on 01522 531341.

Or if you would like more information on our payroll services download our flyer here.