17th February 2020
We have to start with a caveat. This article is being written prior to the March 2020 Budget which is due to be delivered on the 11th March. This, together with the announcement of a new Chancellor on 13th February, means that the information below is potentially subject to change.
Nevertheless, a number of changes have already been announced, some of which impact not only on payroll calculations but also on employment contracts. With a scant few weeks until the new tax year it is therefore worth HR and payroll teams starting their preparations now rather than rushing changes at the last minute.
With that in mind, what is new in payroll in the forthcoming tax year?
National Insurance. The Conservative election manifesto included a pledge to raise employee’s National Insurance rates towards parity with tax rates. The first step has now been taken with a draft statutory instrument having been laid before Parliament which will raise both the Class 1 primary threshold and Class 4 lower profits limit from the current tax year level of £8632 to £9500 for the next tax year. The upper earnings limit remains at £50000 with minor adjustments to the other thresholds.
National Insurance Employment Allowance. With effect from the new tax year the rules in respect of Employment Allowance change; effectively retargeting the allowance towards the smaller business. For more information in respect of these changes take a look at our article entitled ‘New rules for Employment Allowance’ which we posted on 5 November 2019.
Termination payments. First proposed in the 2016 Budget, with effect from the 2020/21 tax year, any termination payments in excess of £30000 will be subject to employer’s National Insurance. A similar move sees non-contractual sporting testimonial payments in excess of £100000 being subject to employer Class 1 National Insurance. These payments will need to be manually calculated and included in the full payment submission for the relevant month.
Tax rates. No announcement has been made in respect of tax thresholds. However, the general expectation is that these are likely to remain unchanged.
Statutory pay thresholds. New rates have been announced in respect of statutory maternity and paternity pay as well as the national minimum and living wages. Increases in the thresholds in respect of student loans have also been announced. Parental bereavement leave is also being introduced with effect from the new tax year with employees with more than 26 weeks continuous service eligible for statutory payments. In addition, for workers who do not have a fixed working pattern or pay, the calculation period in respect of holiday pay increases from 12 weeks to 52 weeks.
New legal requirements for employment contracts. From the 6 April employment contracts must be issued at the start of employment to new employees and new workers. Currently, a contract only needs to be issued to employees within the first two months of employment. The new contract requirements must now also include other specific details of the terms of the employment, including probationary period and details of any training provided.
Commenting on these changes Thompson Jenner Payroll Manager Samantha Cole said “whilst we can prepare for the known changes, with the Budget taking place less than a month before the new tax year there is the potential for some last-minute adjustments which could impact employer or employee pay and taxation. We will of course be working closely with our Devon payroll clients in order to minimise the impact of these changes.”
Contact our Payroll Services team today to arrange a free of charge meeting and see how we can help you save time and money with your payroll, RTI or AE administration.
