A payroll update for 2023/24

Lora Murphy, editor at the Chartered Institute for Payroll Professionals, reflects back on a turbulent tax year for payroll professionals, and looks ahead to ensure 2023/24 gets off to a smooth start

Payroll professionals up and down the country will be praying that tax year 2023/24 is less turbulent than 2022/23. We saw multiple changes to government in the year and this subsequently meant multiple changes to policies, many of which had a direct impact on the payroll profession.
    
It’s important for payroll professionals to pause and reflect on all the challenges they’ve had to overcome in 2022/23 before turning towards future changes in 2023/24. The function often referred to as a ‘back-office’ one has had to grapple with many different hurdles, many of which those outside the profession will have no concept of. We saw not one, not two, but three changes to National Insurance (NI), affecting either rates or thresholds. Commentators have expressed their surprise at this, as it’s not something that’s been previously witnessed. This meant massive changes both inside the payroll department and out, as employees struggled to understand their ever-changing payslips and NI deductions.
    
Then there was the now infamous ‘mini-budget’, which announced, among other things, the abolition of the 45 per cent additional rate of tax from April 2023 and the
repeal of the off payroll working rules in the private and public sectors.

It also announced the reduction of the basic rate of tax from 20 per cent to 19 per cent from April 2023, as well as the announcement of new investment zones, which would offer NI savings for employers of eligible employees.
    
The abolition of the additional rate of tax from April 2023 was the first announcement for the government to U-turn on, but then within a matter of weeks of the ‘mini-budget’ being delivered, chancellor, Jeremy Hunt, reversed the bulk of the other measures announced.
    
During this time, payroll professionals wanted consistency and certainty, and both them and businesses alike weren’t sure of what was going on.

What changes are to come?

The autumn statement was delivered by Hunt on 17 November 2022. While the announcements regarding payroll weren’t as plentiful as expected, this gave the profession some certainty and consistency about things to come. However, the CIPP’s latest Quick Poll results which enquired how much change the industry expects to see in the future showed that 50 per cent of respondents sill felt unsure about what the future holds in terms of the pace of change.
    
One huge piece of news centred on the reduction to the threshold for the additional rate of income tax (charged at 45 per cent). As of April 2023, this will be reduced from £150,000 to £125,140. As a result, more people will inevitably be pushed into that additional rate earnings bracket.
    
While this means one change to tax, the other big news is that there aren’t any further planned changes to tax for some time. The income tax personal allowance and higher-rate tax thresholds are to be frozen until April 2028. The original intention was for the thresholds to remain unchanged until April 2026, meaning an extension on the freeze of two years. Additionally, payroll professionals will be relieved to know that there are no intentions for big mid-year changes to NI in 2023/24. The primary threshold, secondary threshold, upper earnings limit, upper secondary threshold, apprentice upper secondary threshold, veterans upper secondary threshold and freeports upper secondary thresholds will all be frozen until April 2028. The lower earnings limit will stay at the same level in 2023/24 as it was in 2022/23. Similarly, the employment allowance is to remain at £5,000. So, no big changes to NI in 2023/24.
    
The autumn statement also included information regarding national minimum wage (NMW) and national living wage (NLW) rates for use from pay reference periods beginning on or after 1 April 2023. Please note that although the rates are often discussed along with the changes for the new tax year, they don’t technically apply from 6 April.
    
NMW and NLW rates are normally changed year-on-year and so this is an area payroll professionals should keep their eyes on. The government has plans to make big changes by April 2024, including expanding the scope of the NLW, so that it applies to those aged 21 and over, as opposed to those aged 23 and over. It’s thought the substantial increase to the 21-22-year-old rate has been implemented to prepare employers for the abolition of this rate from April 2024. The government also intends for the NLW to reach two-thirds of median earnings by this time.
    
Another set of rates which often changes on an annual basis are the statutory payments. So, these are payments made where individuals are on parental leave or absent due to sickness. The rates will increase in line with inflation, which has been confirmed as 10.1 per cent. Software developers and payroll professionals will need to ensure payroll software includes the correct figures, and to test that those payments are calculated correctly.
    
The documents that accompanied the autumn statement confirmed that HM Revenue and Customs (HMRC) is also set to receive an additional £79 million. This is intended to be used to tackle the most egregious cases of tax fraud and to monitor tax compliance risks among the wealthy.
    
Another area of note relates to public sector exit payments. Readers will no doubt remember the cap of £95,000 placed on public sector exit payments in November 2020 and then subsequently revoked in February 2021. In August 2022, the government published a consultation which explored separate approval processes for public sector exit payments of £95,000 or above, and for special severance payments. The consultation closed on 17 October 2022, and the relevant page states that the government is still analysing responses. The standard timeframe between a consultation closing and a government response being published is 12 weeks, which would mean we could expect to see a response around 9 January 2023. Payroll professionals will be eager to see if anything will need to change in terms of the processes they carry out regarding exit payments.

Get 2023/24 off to a smooth start

Now there’s confirmation on many payroll-related items for 2023/24, software developers and payroll professionals alike are advised to begin planning, sooner rather than later. Testing early means that where there are any issues, they can be identified and resolved with sufficient time in which to do so, rather than a mad, last-minute panic to iron out any problems.
    
Payroll professionals will be accustomed to large change in small amounts of time due to the rapid pace of change seen in the last few years. It wouldn’t be too shocking if we did see future changes to be implemented in small timeframes, but hopefully this won’t happen. To keep up to date with everything and ensure payroll is processed compliantly, it is advisable to always keep one eye out for the variety of resources available for payroll professionals, whether that be the CIPP’s News Online pages, or the GOV.UK page, for example. We do know there are some more announcements to be made (at the time of writing). This includes the maximum amount of statutory redundancy pay and student loan plan 4 threshold. This further demonstrates why it’s so important for payroll professionals to always keep up to date, to ensure they are paying employees correctly.
    
It’s already been confirmed that there will be a spring budget in 2023, which will inevitably bring with it new changes and challenges for the near and distant future. What we know, now more than ever, is that payroll professionals are suitably equipped to deal with change, while still ensuring the business-as-usual action of paying individuals accurately and on time takes place. Payroll professionals are heroes!