There is a permanent easement in place for employers to report PAYE information in real time over the Christmas period. This can be for a number of reasons, for example, during the Christmas period the business may close meaning workers need to be paid earlier than normal.
Employers that pay wages early over the Christmas period should report their normal or contractual payday as the payment date on their Full Payment Submission (FPS) and ensure that the FPS is submitted on or before this date. Doing this will help to protect employees’ eligibility for Universal Credit, as reporting the payday as the payment date may affect current and future entitlements.
HMRC provides the following illustrative example:
If you pay on Friday 15 December 2023 but the normal or contractual payment date is Friday 29 December 2023, you will need to report the payment date on the FPS as 29 December 2023 and ensure the submission is sent on or before 29 December 2023.
The overriding PAYE reporting obligation for employers is unaffected by this exception and remains that you must report payments on or before the date the employee is paid.
New National Minimum Wage (NMW) and National Living Wage (NLW) rates come into effect on 1 April 2023.
The new rate for the NLW will be £10.42 which will represent a 92p increase over the current rate. The NLW is the minimum hourly rate that must be paid to those aged 23 or over. The hourly rate of the NMW (for 21-22 year olds) will increase to £10.18 (a rise of £1). The rates for 18-20-year-olds will increase to £7.49 (a rise of 66p) and the rate for workers above the school leaving age but under 18 will increase to £5.28 (a rise of 47p). The NMW rate for apprentices will increase by 47p to £5.28. The accommodation offset will rise to £9.10 per hour (an increase of 40p).
It is important that employers update their systems, by 1 April 2023, to reflect the new rates as there are significant penalties for employers who are found to have paid workers less than the above rates.
If you have underpaid an employee, you must pay any arrears immediately. There are penalties for non-payment of up to 200% of the amount owed unless the arrears are paid within 14-days. The maximum fine for non-payment can be up to £20,000 per employee and employers who fail to pay face a possible 15-year ban from being a company director as well as being publicly named and shamed.
A salary sacrifice arrangement is an agreement to reduce an employee’s entitlement to cash pay, usually in return for a non-cash benefit. The tax and NIC advantages of certain benefits provided as part of a salary sacrifice arrangement were removed from 6 April 2017. The change removed the Income Tax and employer NIC advantages of certain benefits provided as part of salary sacrifice arrangements such as mobile phones and workplace parking. There was a transitional plan in place for certain benefits that ended on 6 April 2021.
An employer can set up a salary sacrifice arrangement by changing the terms of an employee’s employment contract. The employee needs to agree to this change. The employee’s contract must be clear on what their cash and non-cash entitlements are at any given time.
A salary sacrifice arrangement cannot reduce an employee’s cash earnings below the National Minimum Wage rates. Employers must put procedures in place to cap salary sacrifice deduction and ensure NMW rates are maintained.
It may also be necessary to change the terms of a salary sacrifice arrangement where a lifestyle change significantly alters an employee’s financial circumstances. This may include marriage, divorce and a partner becoming redundant or pregnant. Salary sacrifice arrangements can allow opting in or out in the event of lifestyle changes like these.
One of the measures the Chancellor of the Exchequer, Kwasi Kwarteng referred to in the delivery of the Growth Plan 2022 (commonly referred to as the mini-Budget) concerned moves to simplify IR35 rules. This measure was one of the pre-election promises of the new Prime Minister, Liz Truss. In the end it seems that the Chancellor went further than expected and announced moves to simplify the IR35 rules that included the full repeal of the 2017 and 2021 reforms.
The rules for individuals providing services to the public sector via an intermediary such as a personal service company (PSC) changed from April 2017. The rules shifted the responsibility for deciding whether the intermediaries’ legislation applies, known as IR35, from the intermediary itself to the public sector receiving the service. These rules were further extended in April 2021 for individuals providing services to certain medium and large-sized clients private sector organisations via an intermediary such as a personal service company (PSC). Small companies remained exempt.
It should be noted, that whilst the full details on this change remain to be published, the repeal of the 2017 and 2021 reforms is set to take place with effect from the start of the 2023-24 tax year on 6 April 2023.
From this date, contractors providing services via an intermediary will once again be responsible for compliance with the IR35 rules to determine their employment status and to pay the necessary tax and National Insurance contributions. This will remove the burden that currently falls on businesses and public authorities to determine the employment status of their contractors.
The government will need to ensure that these reforms do not result in increased tax avoidance and there may be new measures put in place in that regard. We will publish further information when more details are made available.
Employers must ensure they are paying staff at least the National Minimum Wage (NMW) or National Living Wage (NLW). The NMW and the NLW are the minimum legal amounts that employers must pay their workers.
HMRC’s guidance states that there are different ways of checking that workers get the minimum wage depending on whether they are:
- paid by the hour (known as ‘time work’);
- paid an annual salary, under a contract for a basic number of hours each year (known as ‘salaried hours’);
- paid by the piece – the number of things they make, or tasks they complete (known as ‘output work’); and
- paid in other ways (known as ‘unmeasured work’) once you know how many basic hours you can calculate if they are being paid at least the minimum wage to which they are entitled.
There are penalties for employers that are found to have underpaid their workers and, in some cases, there may be criminal prosecutions. The NLW is the minimum hourly rate that must be paid to those aged 23 or over. The rates for the period from 1 April 2022 – 31 March 2023 are as follows. The rate for the NLW is £9.50. The hourly rate of the NMW (for 21-22 year olds) is £9.18. The hourly rate for 18-20 year olds is £6.83 and the rate for workers above the school leaving age but under 18 is £4.81. The NMW rate for apprentices is £4.81.
If an employee has been underpaid, the employer must pay any arrears without delay. There are penalties for non-payment of up to 200% of the amount owed. The penalty is reduced by 50% if all of the unpaid wages and 50% of the penalty are paid in full within 14 days.
The maximum fine for non-payment can be up to £20,000 per employee and employers who fail to pay face up to a 15-year ban from being a company director as well as being publicly named and shamed.
A PAYE Settlement Agreement (PSA) allows employers to make one annual payment to cover all the tax and National Insurance due on small or irregular taxable expenses or benefits for employees.
The expenses or benefits included in a PSA must be defined as one of the following;
- minor – e.g., a small birthday present;
- irregular – e.g., one-off relocation expenses over £8,000 (these are tax-free below £8,000); and
- impracticable (difficult to work out the value of or divide up between individual employees) – e.g., shared cars or taxi journeys.
Employers that are required to notify HMRC of the value of items included in a PAYE settlement agreement (PSA) must do so using form PSA1.
The deadline for applying for a PSA for 2021-22 expired on 5 July 2022. Any tax or National Insurance due for 2021-22 under a PSA must be paid electronically to clear into HMRC’s bank account by 22 October 2022. Employers that pay by cheque must ensure that the payment reaches HMRC’s Accounts Office by 19 October 2022. There may be interest and / or a late payment penalty due where the payment is made late.
The Employment Allowance reduces an employer's NIC liability. The current allowance is £5,000. An employer can claim less than the maximum if this covers or eliminates their total Class 1 NIC bill.
The allowance is only available to employers that have employer NIC liabilities of under £100,000 in the previous tax year. Connected employers or those with multiple PAYE schemes will have their contributions aggregated to assess eligibility for the allowance. The Employment Allowance can be used against employer Class 1 NICs liability. It cannot be used against Class 1A or Class 1B NICs liabilities. The allowance can only be claimed once across all employer’s PAYE schemes or connected companies. De minimis state aid rules may also apply in restricting the use of the allowance.
Employment Allowance claims need to be re-submitted each tax year. There are currently a number of excluded categories where employers cannot claim. This includes limited companies with a single director – and no other employees – as well as employees whose earnings are within IR35 ‘off-payroll working rules’.
You can also backdate your claim for the Employment Allowance for the previous four tax years.
For the tax years 2018-19 and 2019-20, it does not matter how much your employers’ Class 1 NICs liability was or how much de minimis state aid you received.
The Employment allowance was £3,000 in 2018-19 and 2019-20 and £4,000 in 2020-21 and 2021-22.
The tax treatment of termination payments has changed significantly over recent years. The changes have aligned the rules for tax and secondary National Insurance contributions (employer (NICs)) by making an employer liable to pay NICs on termination payments they make to their employees.
Employees do not pay tax and National Insurance on:
- Contributions their employer makes to a registered pension scheme as part of their termination payment – tax will be due on any employer contributions that go above the Annual Allowance.
- Legal costs related to the settlement that their employer pays directly to their solicitor.
- A termination payment they receive because of an injury, illness or disability that prevents them from being able to continue to do their job.
Employees do not usually pay tax on the first combined £30,000 of:
- statutory redundancy pay;
- additional severance or enhanced redundancy payments your employer gives you; and
- non-cash benefits, for example company property you keep after your employment ends.
Employees are required to pay tax on any amount over a combined total of £30,000.
An employer is required to pay employer Class 1A NICs on any part of a termination payment that exceeds the £30,000 threshold.
Employees are liable to pay tax and National Insurance on payments they would have earned whilst working. This includes lump sum payments in lieu of notice (PILONs), pay on ‘gardening leave’ and part of any severance, enhanced redundancy or non-cash benefits they receive (known as Post-Employment Notice Pay (PENP).
The deadline for submitting the 2021-22 forms P11D, P11D(b) and P9D is 6 July 2022. The forms can be submitted using commercial software or via HMRC’s PAYE online service. Employees must also be provided with a copy of the information relating to them on these forms by the same date. P11D forms are used to provide information to HMRC on all Benefits in Kind (BiKs), including those under the Optional Remuneration Arrangements (OpRAs) unless the employer has registered to payroll benefits.
This is known as payrolling and removes the requirement to complete a P11D for the selected benefits. However, a P11D(b) is still required for Class 1A National Insurance payments regardless of whether the benefits are being reported via P11D or payrolled. The deadline for paying Class 1A NICs is 22 July 2022 (or 19 July if paying by cheque).
Where no benefits were provided from 6 April 2021 to 5 April 2022 and a form P11D(b) or P11D(b) reminder is received, employers can either submit a 'nil' return or notify HMRC online that no return is required. Employers should ensure that they complete their P11D accurately, including all the details of cars and loans provided. There are penalties of £100 per 50 employees for each month or part month a P11D(b) is late. There are also penalties and interest for late payments.
Any tax or National Insurance due for 2021-22 under a PAYE Settlement Agreement (PSA) needs to be paid electronically to clear into HMRC’s bank account by 22 October 2022 (19 October 2022 for payments by cheque). This does not need to be reported on a P11D.
There are a multitude of rules that new businesses must follow when they start employing staff for the first time. These include ensuring registering for PAYE as an employer with HMRC. This must be done before the first payday and this process must even be completed by directors of a limited company who are employed by the company.
There is no requirement to register as an employer in the event that none of your employees are paid more than £123 a week, don’t receive expenses or benefits and don’t have another job or get a pension. However, even if this was the case you are still required to keep payroll records.
Setting up payroll for the first time can be daunting and we are here to help. As a general rule you have the choice between using a payroll provider or running your own payroll. If you decide to run your own payroll you must choose suitable payroll software.
HMRC also needs to be sent information about tax and other deductions from employees’ pay when the employee is paid. This is done using the Real Time Information (RTI) system which involves employers sending HMRC information each tax month. Tax months run from the 6th of one month to the 5th of the next.
You must also ensure that you are complying with the minimum wage legislation, check that any new employees have the legal right to work in the UK and to be aware that you will be required to offer a workplace pension scheme.