Introduction
The United Kingdom (UK) government and devolved governments of Scotland and Wales made adjustments to the application of payroll related law that may require employer attention for the tax year commencing 6th April 2021.
Sometimes these changes offer choices which require an employer to indicate configuration settings to be used on SD Worx solutions. Information is provided within this document and by direct communication which has been sent to your organisations registered contact.
These changes relate to:
Employment Allowance.
Since 6th April 2020 and annually thereafter, organisations are only entitled to the Employment Allowance where the NIC bill for the prior tax year is under £100,000 for the group employer (across all PAYE schemes).
There is a requirement for organisations to indicate against any PAYE scheme claiming the £4,000 Employment Allowance: an industry type for which they may already be receiving De Minimis State Aid.
This must also be reported on the initial Employer Payment Submission (EPS) submission for each tax year, any prior tax year declaration is no longer carried forward.
National Minimum Wage.
National Minimum Wage and National Living Wage law is complex, and an increasing number of employers are being judged to be committing NMW underpayment crime. Recent naming and shaming by the UK government BEIS reported 139 ‘rogue’ employers.
Confusion surrounds the complexities with flexible benefit schemes, salary sacrifice, employment costs and deductions for the benefit of the employer etc.
SD Worx pay solution offers added value configurable options to help employers gain better assurance that they are not committing NMW underpayment crime based on payroll data relating to time worked and pay.
Automated minimum payments rates facility are also an option for those who pay at minimum pay levels – however, this does not guarantee compliance as minimum pay is about amounts received for time worked, not the pay rate per hour.
The service even extends to options in relation to the voluntary Living Wage rates (sometimes referred to as the Real Living Wage).
The SD Worx pay solution can undertake a real-time minimum pay compliance check on payroll data processed to enable employers to view potential breaches. Be warned, the penalties and implications of failing to pay minimum payments are significant.
Holiday Pay
Under the Employment Rights Act and the Working Time Regulations, all workers and employees are entitled to Holiday Pay and leave. UK Law requires that a minimum entitlement of 5.6 weeks (reg 13 & 13a) paid leave is provided each holiday year (pro-rated for part years). This generally equates to 28 days.
Holiday pay law changed on 6th April 2020 in relation to the minimum amount of pay for a week of leave within Great Britain. In most cases where there is an aspect of variable pay, then the minimum holiday pay entitlement is based on 52 weeks of average pay (any weeks with zero pay are ignored). For Northern Ireland the basis remains as previously on a 12-week average of pay.
An SD Worx resource to the government guidance and legislation as it relates to Holiday Pay Entitlement and pay is available at the following link:
Off Payroll Working / Deemed Employment / IR35 (Changes for the private sector)
The proposals to extend Off-Payroll Working rules for large employers in the private sector are going ahead from 6th April 2021. This obligates engagers captured by the relevant regulations of those assessed as being in IR35 individuals to be added to payroll, and for amounts other than expenses and VAT to be subject to Tax and National Insurance and reported on the engagers employer PAYE RTI return. ‘Deemed employees’ are neither workers not employees for other purposes (such as Student Loan, employment rights, statutory payments and in most costs pension obligations.
A separate SD Worx guide is available to those who are impacted by Off-Payroll Working.
Any off-payroll workers need to be identified against Data Item E350 and an engager may require new configurable pay elements to be requested and added to the relevant payroll. For assistance with your project and the setup please do contact SD Worx.
Please note that these requirements have been applicable in the Public Sector since April 2017.
Tax rates; Tax Changes and New Tax Codes
The Westminster Budget was held on 3rd March 2021
The following details were confirmed.
Scottish Tax Rates and Banks (tax code prefix ‘S’)
The Scottish Parliament approved the following changes for the 2021/2022 tax year. The HMRC have confirmed that the new bands applied from 6th April 2021.
Welsh Rate of Income Tax (Tax Code prefix ‘C’):
The Welsh Assembly in theer December 2020 pre-budget indicated an intention to not vary the Welsh income tax rates from those of the rest of the UK. The HMRC confirmed that the rates and bands to be applied from 6th April 2021 as:
Rest of the UK Tax Rates and Bands – England and Northern Ireland (those with no tax code prefix):
The following value have been confirmed as applying from 6th April 2021.
Tax Code uplift for all UK tax codes (including Scotland and Wales)
The Westminster government and HMRC confirmed the uplift for tax codes for the 2021/2022 tax year.
Tax code uplift occur by authority of the HMRC P9X as:
- Suffix “L” tax codes will be increased by +7 points (+£0)
- Suffix “M” tax codes will be increased by +8 points (+£0)
- Suffix “N” tax codes will be increased by +6 points (+£0)
All other tax code amendments will be notified by the issue of individual HMRC electronic messages / forms P9 or P6.
Using the right tax code for new employee and completing the starter declaration on their first FPS
For the 2021/2022 tax year, the tax code you need to use depends on when they left their previous employer and their starting date with you.
When you enter a start date for a new employee you (the employer) must also complete a starter statement A, B or C (data item T330) even if presented with a P45.
The following tables (applicable for the 2021/2022 tax year) explain what action you need to take but is based on 6th April 2021 and subject to change:
In date P45 received – Employer must obtain a starter checklist declaration from their employee
No P45 received or the P45 has a leave date before 6th April 2020 – Employer must obtain a starter checklist declaration from their employee
P45 received after first payment
If the student loan indicator is shown on the P45 start deducting student loan repayments, unless you’ve been told by HMRC to stop, from when the employee started with you.
If you have received a tax code from HMRC for this employee
- Continue to use the tax code, and any previous pay and tax information, supplied by HMRC. Do not use the tax code from the P45.
If you have not received a tax code from HMRC for this employee
- If the figures on the P45 (if dated after 6 April 2021) are incorrect, you should use the corrected figures
- Decide which tax code to use as detailed above
- Adjust the employee’s figures to show the total taxable pay and tax to date
Starter declaration received after first payment
- Add any personal details and store the information
- Do not apply the declaration as HMRC already have start information
- Apply any Student Loan and Postgraduate Loan information if relevant
- If you have received a tax code from HMRC, continue to use the tax code issued by HMRC only.
HMRC starter checklist completion
The starter checklist is required for completion by all employees whether they present a P45 or not.
If the P45 indicates a Student Loan and that their course finished before the last 6th April, then the employee must complete the Student Loan questions to determine the correct Plan Type 1 (default) or Plan Type 2 and whether there is a postgraduate loan deduction to take place.
Employers are permitted to create or use their own version of the form or incorporate the starter checklist questions into employer created induction/new starter documents.
The example or template starter checklist can be downloaded at:
It is possible to print blank copies of the forms or employers may email the form for completion by their employees as necessary.
New Starter Checklist and Student Loans
The student loan questions can be problematical for employees. For April 2021 the questions have been simplified to be clearer, however, employees that have graduated in the current year may not understand that they did not graduate and leave their course before 6th April.
Question 9
A Student or Postgraduate Loan is only to be applied if the NO box is ticked against question 9.
If YES is ticked then there are no student loan deductions to be deducted even if the employee has marked items against question 10.
Question 10
An employee may indicate multiple student loan types that apply to them.
As an employer you must only apply one of the Plan types for 1, 2 or 4.
An employee can also have a Postgraduate loan operating as well.
The table below indicates which Plan type is to be applied to payroll depending on the items marked against Question 10.
Student and Postgraduate Loan repayments
The annual thresholds for student and postgraduate loan borrowers are revised annually on 6th April.
Please note – only enter a student loan stop notice If you have been issued with an SL2 notice from HMRC. If you are changing loan plan types from ‘L1’ to ‘L2’ or ‘L2’ to ‘L1’, only enter a start notice (equivalent to SL1 start notice from HMRC) – HMRC SL2 Stop notice will stop any student loan (both plan 1 and 2). Postgraduate loans are identified by the user of type ‘LP’. In April 2021 there are plans for a separate threshold applicable to Scottish Type 1 Loans. These will be identified in a different way to the rest of the UK when introduced.
The thresholds are the annual amounts that can be earned before any student loan or postgraduate loan deduction is applied (on a pro-ration basis for the tax period). It is possible to have both student loan and postgraduate loan to be deducted at the same time.
National Insurance Contributions
The following thresholds and limits apply for payments from 6th April 2021 (with prior year values in brackets if different):
Please note that due to different rounding rules in relation to Tax versus NICs law, the PT/ST/AUST/UST/UEL for 2/4 weekly is not necessarily a multiple of the weekly values. However, and for this tax year, the LEL & ST are coincidently multiples of the weekly values. The PT and ST continue to not be aligned.
The following National Insurance Contribution rates apply for payment due from 6th April 2021:
See the guide to the operation of National Insurance (including Class 1A applicable to Termination and Sporting Testimonials).
National Minimum Wage and National Living Wage
On the 25th November 2020, the UK government approved the Low Pay Commission recommendation for the uplifting of minimum pay rates within the United Kingdom – these new minimum rates apply for pay periods commencing on or after 1st April 2021. They also announced the qualifying age for National Living Wage would be reduced to 23 years and over.
National Minimum pay is not about the employee hourly pay rate, but about the hourly rate received after any relevant reductions, and deductions for the benefit of the employer. Important factors are the accurate recording of working time as defined by NMW law and the treatment of certain working expenses, such as ‘uniform’. Timing of work and payment is also critical. Some amounts of pay do not count towards NMW pay such as the premium element of overtime. Absence is not counted as working time. It is possible for employees with hourly pay rates above perceived minimums are actually paid below National Minimum Wage.
SD Worx offers value added services that enable employers to reduce their exposure to minimum pay breaches. Employers can identify the elements of time and pay relevant to NMW calculations to identify and prevent potential breaches.
Two facilities are offered which may assist an employer with their minimum pay obligations:
- Automated Pay Rates – where an employer uses the NMW/NLW rates, then these are automatically checked for age and payment point changes and applied. However, this does not ensure compliance with NMW law, only that the starting rates match the NMW rate applicable to the individual.
- Compliance report – subject to correct configuration of time and pay elements, this verifies within the current period whether there is a potentially minimum pay shortfall. This information is based on pay data processed in the current period.
If either or both facilities are a consideration, please contact SD Worx for further information. National Minimum Pay law is complex and is not purely about payment but about the whole workplace processes and practices.
Statutory Payments
Statutory Parental Payments (SMP, ShPP, SPP, SAP & SBPB – change on 4 April 2021)
The Small Employers Compensation Rate remains at 3% (on payments made on or after 6 April 2011). The Small Employers Relief (SER) Threshold is £45,000.
Statutory Sick Pay (change on 6 April 2021)
Pensions
This section details changes to pensions that have been announced.
The gov.uk service offers tools for calculating state pension age:
Pension Auto-Enrolment (from 6 April 2021)
The Pensions Regulator (TPR) has confirmed the levels and triggers in relation to Pay Reference Periods (PRP) which start on or after 6th April 2021:
Please note that for payments made in the new tax year where the Pay Reference Period commences prior to 6th April 2021 (such as 1st April 2021), then the 2020/2021 levels and triggers apply and not the new year values. As an option employer may apply the tax period as the Pay Reference Period (PRP).
HMRC Real Time Information (RTI)
HMRC provide additional resources on employers obligations to operate RTI.
Additional guidance is also available for Company Car reporting for those registered with HMRC to voluntarily payroll benefits in kind that are registered with SD Worx specialist service. These reporting options do not apply to involuntary payrolling of benefits (where the employer has not registered with the HMRC online service) or those not utilising the SD Worx Payrolling services.
Employer Payment Summary (EPS) using Basic PAYE Tools
The Basic PAYE Tools may be used for the filing of the PAYE scheme Employer Payment Summary (EPS) for the following:
- Indicating that the employer is claiming the Employment Allowance (EA) along with the industry type for Diminimus State Aid considerations
EPS filing is not part of SD Worx Payroll Services but a managed EPS submission is available as an additional value-added service.
- Reclaim of recoveries and offset values against NIC and Tax
- Reporting Apprenticeship Levy
- Confirming completion of the tax year
Additional resources
HMRC are encouraging employers to provide links and encourage their use to employees, SD Worx have included several links for employee use both within various self-service / portal solutions and also on the payroll resources page.
These can be also be found at
With the introduction of different Scottish tax bands and tax rates, it is essential that employees who cross borders ensure that HMRC have their latest home address. This can be checked by individuals using the GOV/HMRC provided Personal Tax Account. Equally other government provided resources are available to employees:
- HMRC Personal Tax Account: https://www.gov.uk/personal-tax-account
- Notification to HMRC of change in personal circumstances: https://www.tax.service.gov.uk/shortforms/form/PAYENICoC
- Self Assessment: https://www.gov.uk/self-assessment-forms-and-helpsheets
- Calculate State Pension: https://www.gov.uk/state-pension-age
- Calculate statutory redundancy pay: https://www.gov.uk/calculate-your-redundancy-pay
- Apply for, renew or update a UK passport online: https://www.gov.uk/apply-renew-passport
- Driver Vehicle Licensing Authority: https://www.gov.uk/government/organisations/driver-and-vehicle-licensing-agency
- Holiday Entitlement: https://www.gov.uk/calculate-your-holiday-entitlement
Disclaimer:
– the information provided does not constitute financial or taxation advice. The views expressed are the opinions of their author based on information and facts applicable at the time of publication. Some views will be expressed in relation to future legislation which may still be subject to parliamentary approval and subject to change.
Beta version – Last updated 17/1/2021 (PSP)
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