Samantha Mann of the Chartered Institute of Payroll Professionals, shares her advice on preparing for the end of the financial year and what to expect in the next one
One of the challenges for anyone working within payroll and who is facing a rapidly approaching year end is the need to be fully up to date, not just with any pay information or details that you may have only just been sent that should have been accounted for back in the Summer, but also being fully prepared for what comes after the end of the year – namely a new year.
The one constant for payroll professionals is the certain knowledge that there will be change in the new year, from slight tweaks within the software functionality to major new policy initiatives from government. In this article I aim to cover examples of both, plus a change for 2017-18 that comes between those two extremes.
SRIT – rates announced within the Scottish Budget
2017-18 will see, for the first time, a variance in the income tax thresholds and rates to be used between Scottish rate tax payers and those in the Rest of the UK (rUK). This was announced in the Scottish Draft Budget on 15 December but is still subject to approval by the Scottish Parliament. This serves as a timely reminder to ensure that the main residence address of each employee is up to date.
Informing HMRC of any change to an address remains the responsibility of the individual and the most efficient method to use would be the Personal Tax Account (PTA). If an employer submits an FPS showing a new address three times, HMRC will update their records for the individual and update the PTA. Correct addresses should ensure that HMRC is able to identify all Scottish Rate tax payers and issue the correct tax codes.
The Apprenticeship Levy impact
From 6 April 2017 where an employer’s paybill exceeds £3 million, they will begin to make payment for the Apprenticeship Levy by paying 0.5 per cent of their paybill amount over to HMRC each tax month along with remittances for PAYE Income Tax and National Insurance Contributions (NICs).
Where an employer had a paybill of less than £2.8 million in 2016/17 and they predict that their paybill will not exceed £3 million during the 2016/17 tax year they will not need to engage with the Apprenticeship Levy.
The paybill is made up of the total amount of employee earnings (such as wages/salary, bonus and commission) that are subject to Class 1 National Insurance contributions including all employee earnings below the Lower Earnings Limit and the Secondary Threshold Employees. Whilst employers pay at a rate zero per cent for employees under the age of 21 and apprentices under the age of 25, their pay will still need to be included within the paybill total.
An annual levy allowance of £15,000 will be available to offset against the Apprenticeship Levy. The allowance will be applied cumulatively across the tax year and increase by £1,250 per tax month.
Pooled payrolls might not be very widespread these days but they are still frequently used in some sectors. Local authorities serving schools are believed to be most likely to have legacy pooled payrolls still in operation. They occur where more than one employer uses the same PAYE reference number to report PAYE information to HMRC.
As an example, where a local education authority (LEA) continues to provide payroll services to a school that has transferred out of maintained status (it is now voluntary-aided, a foundation school or an academy), the LEA may run the school’s payroll within its own PAYE scheme instead of the school setting up its own. As a result, the Real Time Information (RTI) submissions contain information for more than one employer’s workers.
From April 2017, employers are required to calculate the apprenticeship levy due for each tax month, pay this amount to HMRC with other remittances, and include details in their Employer Payment Summary submissions. Only employers who have no levy to pay are excluded from this duty, which will only happen if the levy allowance for the tax month exceeds 0.5 per cent of the total value of the paybill that month.
One levy allowance can be claimed for each PAYE scheme so a pooled payroll can only process one amount of levy allowance for the combined pay bills (this assumes there are no added complications due to connected companies and charities, and employers with multiple PAYE schemes.)
Where a pooled payroll is small enough that 0.5 per cent of the sum of the paybills is less than the full monthly levy allowance (£1,250), no levy payment will be triggered. However, there could be other implications where together the £3 million limit is breached. This could be because the pooled paybill may be large enough to trigger a levy payment while the individual pay bills are small enough not to.
It could also be because the levy payment for the largest employer in a pooled payroll could be increased by the inclusion of other employers’ paybills in the total paybill. Another reason this could occur is where more than one employer in a pooled payroll has a large enough pay bill to be liable to make a levy payment, it would not be possible to report the separate liabilities to HMRC. In addition, the levy-payers would not be set up with separate digital accounts for apprenticeship funding, because these are also linked to PAYE references. Where none of the employers in a pooled payroll expect to make apprenticeship levy payments in their own right, then they do not need to make any changes to the pooled payroll, even if the sum of their pay bills exceeds the trigger level (so long as their payroll software allows this).
Where a pooled payroll contains only one employer who is liable to make apprenticeship levy payments, the calculation must ensure that only that employer’s pay bill is taken into account, ignoring the smaller employers’ paybills. Employers in this scenario should contact their payroll software provider to find out whether the software will be able to handle this situation correctly from April 2017. If the payroll software cannot exclude the other employers’ pay bills, then the largest employer would have to split from the pooled payroll and set up its own PAYE scheme. This may have implications for the continued feasibility of the pooled payroll itself.
Where more than one employer in a pooled payroll is liable to make apprenticeship levy payments, then the pooled payroll must be split so that each levy-payer has a unique PAYE reference. One employer can remain in the original PAYE scheme (with any employers that are too small to have a levy liability of their own, so long as the payroll software can handle this correctly). The other employers must set up individual PAYE schemes.
All employers in pooled payrolls, including those where the total pay bill is currently below the levy trigger point, must monitor the level of their pay bills carefully throughout the tax year in case of increases that mean a levy payment is triggered, even if only for one tax month.
RTI and the tax year end process
In the build up to the go live of RTI it was widely prompted that the tax year end as we know it would end. And indeed the Employer Annual Return (P35) and the associated (duplicate copy) P14 also came to an end for the employer.
However, the 5th April does still arrive and brings with it associated deadlines for the final submissions of FPS, EPS and an ultimate deadline beyond which any changes must be notified to HMRC by way of and EYU (Early Year Update) i.e. 19 April. It therefore remains as important as it ever was to ensure that all pay information has been processed throughout the year and reconciles to all payments made to HMRC – and employees. Employees must also be provided with their P60 by no later than the 31 May.
Staying up to date
There is always so much more that we could mention but word count limits this and so as one of your end of year/new year resolutions. Make it your resolution to stay fully up date as the year progresses and in addition to keeping up to date via professional subscriptions, keep an eye out for HMRC updates. This can be via: Employer Bulletin; Agent Update or HMRC Webinars and Webcasts. In addition, all payroll, finance and HR professionals have access to CIPP daily news and CIPP members can attend the national Forums which aim to add a little more meat to the bones of our news articles.