WFM UK: 2020 to 2021 Tax Year Updates for Payroll

2020-2021 Tax Year Updates Overview

This article is designed to provide an overview of the changes which HMRC are planning on introducing in April 2020.

The exact Legislative requirements have not yet been confirmed by HMRC. However, the detail below is based on draft guidance already published by HMRC in relation to the proposed changes.


IR35 – Off Payroll Workers

‘Off Payroll Working’ rules have been in place since 2000.  They were designed to ensure that people who work for a Personal Service Company (PSC), who otherwise would be classed as an employee, pay the same amount of Tax and NICs as if they were employed.  In April 2017, the rules changed for Public Sector Organisations and from April 2020, the Private Sector rules will come into force.

What’s Changing?

As of April 2020, medium and large sized Organisations within the Private Sector are responsible for calculating and deducting the relevant Tax and NICs before making any payments to PSC Workers.  

These deductions then need to be reported and paid over to HMRC in the usual FPS and EPS Submissions.

Which Organisations Are Exempt?

Only qualifying small Organisations will be exempt from the new Off Payroll Workers regulations. To qualify as small:
 

• A Small Incorporated company must meet two of the following criteria:
  • Fewer than 50 employees
  • Annual turnover of less than £10.2m
  • Total balance sheet assets of less than £5.1m

• A Small Unincorporated company must
  • Have an annual turnover of less than £10.2m

How do I know if I have any Workers that fall inside the new Regulations?

If contractors are hired by the Company, they will need to be assessed to establish whether they fall inside or outside of the Off Payroll Workers regulations.

HMRC have an online tool which provides more information on Contractor Workforces and the Company’s responsibilities in terms of communications and payments.

https://www.gov.uk/guidance/check-employment-status-for-tax

Changes within Payroll

Payroll will need to be run for Off Payroll Workers to calculate Tax and NIC allowances.  This Payroll will need to be submitted to HMRC, on or before payday, via an FPS submission making sure that the correct flag relating to Off Payroll Workers is included.

Student Loans and Pension Deductions are not required for off Payroll Workers, but the amount of NI-able pay reported on the FPS should be included in Apprentice Levy calculations.


Employment Allowance Reforms

Currently, Employers can claim Employment Allowance to reduce their (Secondary) Class 1 NIC (Employers NIC) bill by up to £3000 each year. The HMRC have announced that the current Employment Allowance legislation has been reformed and the changes will come into force in April 2020.

What’s Changing?

Employers whose (Secondary) Class 1 NIC Liability was over £100,000 or more in the previous tax year will no longer be able to claim the £3000 Employment Allowance.

Employment Allowance will now be classed as ‘De Minimis State Aid’ and is subject to a number of qualification rules relating to EU State Aid regulations in order for Employers to be able to claim it.

What are the Qualification Rules?
 

1. An Employer’s Secondary NIC bill must be below £100,000 for the previous tax year in order to Claim Employment Allowance for the current one.  For example, the total Employer NIC Liability for 2019/2020 must be under £100k in order to claim Employment Allowance for 2020/2021.
2. The total amount of De Minimis State Aid received during the previous 2 years - plus the current year to date - must not exceed the limit of the industry sector which the Employer falls within.

Changes within Payroll

Some new fields will need to be reported on the EPS if a company claims Employment Allowance.


Statutory Parental Bereavement Leave (SPB)

HMRC have introduced new Statutory Leave and Payments for employees who suffer the loss of a child under the age of 18 or a miscarriage after 24 weeks of pregnancy.

Further Information

Mothers and Fathers who suffer a loss will be entitled to 2 weeks of Statutory Leave.  These 2 weeks can be taken consecutively or separately.  If taken separately, both weeks must be taken within a 56-week period following the date of death / stillbirth. 

If they qualify, they will be entitled to receive Statutory pay (weekly rate TBC) for those two weeks according to the standard Parental Leave rules

The qualification criteria will be the same as it is for other Statutory Parental payments based on length of service and salary.


Changes to Termination Payments and Sporting Testimonials

From April 2020, the rules around Termination Payments and Sporting Testimonials will change, requiring Employers to report Class 1A NIC amounts for these payments through Payroll.

What’s Changing?

Any Payments made in excess of £30,000 in regards to Termination payments, or £100,000 for Sporting Testimonials - which would usually be charged tax only - will now also be subject to Class 1A National Insurance contributions.

Normally, Class 1A NICs are reported to HMRC via a P11D. As of April, the details of the amount of Class 1A NIC due on these types of payments will have to be reported via the FPS.

Details of how these payments will be made to HMRC is not yet known. However, it is thought that they will not form part of the monthly PAYE payment at this time.


Average Holiday Allowance for Flexible Workers over 52 weeks

The number of weeks used to calculate Holiday Allowance which must be calculated for flexible workers will change to 52 weeks from April.

For individuals who have been employed for at least 52 weeks, the period used to calculate Holiday Allowance will increase to 52 weeks.  If employees have worked for less than 52 weeks, the Holiday Allowance will be calculated on the number of weeks which they have been employed for.

New guidance for employers will be produced by the UK Government, which will include details of how to calculate Holiday Pay.


What’s Next?

Further updates on these changes and how Fourth are helping Customers to be compliant will be available on Fourth Communities over the coming months.

For further information on any of these changes, please visit the HMRC website.