Getting Ready for the UK’s New Tax Year

The UK’s last budget introduced a range of economic measures which will start to kick in with the 2019 tax year.

In his 2018 Autumn Budget, Chancellor Philip Hammond juggled a positive 1.6% GDP forecast with the mounting economic effects of Brexit. Broadly interpreted as a move away from austerity, the measures announced by the Chancellor were not scheduled to come into effect until the start of the UK’s new tax year, 6 April 2019, or the following tax year, 2020-21.

With the new tax year almost upon us, it’s time for employers and payroll departments in the UK to get ready for those incoming measures.

1.) Budget Update

Measures for individuals: The 2018 budget held several positives for individual taxpayers.

From April 2019:

  • The tax-free personal allowance will rise from £11,850, to £12,500.
  • The higher rate of income tax (40%), will rise from £46,350 to £50,000, reducing the number of higher rate taxpayers by 1 million.
  • The National Living Wage will increase to £8.21 (from £7.83), representing a £690 annual rise for full-time workers.

Another future measure to keep in mind: from the 2021-22 tax year, the tax-free personal allowance will be indexed with the Consumer Price Index.

Measures for businesses: The budget included measures for businesses scheduled to commence from both the 2019 tax year and from the 2020 tax year.

From April 2019:

  • Apprenticeship Levy: The apprenticeship levy will be reduced from 10% to 5%. Larger businesses will be able to support apprentices by investing up to 25% of their levy.
  • Business Rates: Small retail businesses (valued up to £51,000) will have their business rates reduced by two thirds, for two years. This measure effectively amounts to £900 million of relief, and £8,000 in savings for 90% of independent retailers, pubs, and restaurants. Public toilets will receive 100% business rate relief.

From April 2020:

  • Rule IR35: The employee classification rule, IR35, will be extended from the public sector to private businesses (large and SMEs). Private sector employers and payroll departments will need to be more stringent with employee classification, especially when employing contractors. The measure is expected to recover £1.3 billion in tax - the government has attempted to address concerns about an increased compliance burden by pointing out that the UK’s 1.5 million smallest businesses won’t be affected.

From April 2021:

  • Employment Allowance: From the 2020-21 tax year, the Employment Allowance (EA) will be limited for businesses making employer NIC contributions of less than £100,000. EA will remain available for 93% of employers, effectively offering annual savings of up to £3,000.

2.) UK & Scottish Tax Rates

UK tax bands: In the 2019-20 tax year, the UK’s higher rate tax band will rise to £50,000. The UK’s tax bands will be set as follows:

UK Tax Band

Tax Rate

Basic Rate - £12,500-£50,000

20%

Higher Rate - £50,000-£150,000

40%

Additional Rate - Above £150,000

45%

 

Scottish tax bands: Scotland’s tax system is divergent from the rest of the UK. In 2018, the Scottish government introduced a 5-band tax system - and this will be maintained for the 2019-20 tax year. ‘Scottish taxpayers’ are distinguished by HMRC by their main place of residence - the tax bands and rates are as follows:

 

 Scottish Tax Band

Tax Rate

£12,500 to £14,549

19%

£14,549 to £24,944

20%

£24,944 to £43,430

21%

£43,430 to £150,000

41%

Above £150,000

46%

 

Scottish higher rate: Unlike the rest of the UK, the Scottish higher rate tax band has been frozen at £43,430 for 2019-20. The freeze will generate an estimated £68 million for Scotland’s treasury.

This divergence generally means that higher earners will pay more tax in Scotland, while low earners will pay less. For example:

  • A salary of £200,000 would be liable for £78,169.07 income tax in Scotland, and only £75,000 in the rest of the UK.
  • A salary of £15,000 would be liable for £479.50 income tax in Scotland, and £500 in the rest of the UK.

Welsh Income Tax: Welsh rates of income tax (WRIT) have been set at 10% for the 2019-20 tax year. The rest of the UK (rUK) rates are reduced by 10% for Welsh taxpayers, before WRIT rates are added back on - effectively ensuring Welsh taxpayers pay the same rates as the rest of the UK (excluding Scotland).

To ensure WRIT apply, employers should use the ‘C’ PAYE tax code from 6 April 2019.

Bereavement pay and leave: New regulations should pass Parliament in 2019 which entitle parents who lose a child under 18, or those who suffer a stillbirth after 14 weeks of pregnancy, to bereavement pay and leave.

The Parental Bereavement (Leave and Pay) Act is expected to come into effect from 6 April 2020.

Student loans: From 6 April 2019, student loan thresholds will rise to:

  • £18,935 for Plan 1 recipients
  • £25,725 for Plan 2 recipients

Deductions - set at 9% - will remain the same for both loan plans. The new employee starter checklist will be updated to establish which plan an employee has (or if they have both). If the plan is not known, employers should default to Plan 1 deductions and verify the plan with the SL1 notice sent by HMRC.

3.) Payroll & Benefits

Businesses are increasingly taking advantage of the option to tax employee benefits in kind via payroll - which removes the administrative burden of filling out and filing P11D forms at the end of the tax year. For more information on payrolling benefits in kind and HMRC’s PBIK service, read our PBIK guide.

4.) Short Term Business Visitors

In the 2020-21 tax year, changes will come into effect regarding tax arrangements for short-term business visitors to the UK (STBV).

From April 2020,

  • The workday limit for participant in annual PAYE schemes applicable to STBVs will rise from 30 to 60 days. The change will allow employers to file a single payroll report at the end of the tax year (as opposed to monthly returns), and should allow for more STBVs to come into the UK from overseas branches and from non-double taxation territories.
  • The deadline for reporting and paying tax on these special STBV PAYE regimes will be extended from 19 April to 31 May (following the end of the tax year). The change aligns STBV PAYE regimes with EP Appendix 4 STBV arrangements.

For more information on business visitors in the UK, browse activpayroll’s online tracking solution and our recent insight into STBV tax liabilities

5.) Employee Tax News

Changes to payslips: From 6 April 2019, new regulations regarding payslips will come into effect for UK businesses:

  • UK employers will have to provide detailed, itemised payslips to every worker on their payroll. This measure means payslips must be issued to not only to those workers classified as ‘employees’, but to contractors, freelancers and other non-employee workers.
  • Payslips will have to include the number of hours or days worked in contexts where pay varies by time worked. For example, if a fixed salary worker works overtime for an additional hourly rate, only the overtime hours need to be shown on the payslip. In more detail, the new rules regarding time worked are as follows:
    • Hours can be show as a single total, or broken down as separate figures for different work, at different rates. Pay periods must be shown clearly.
    • Hours shown on a payslip are separate from those used to calculate the National Minimum Wage.
    • When pay does not vary by time (for fixed salary workers, for example), there is no need to include an hourly figure when those variations occur as a result of unpaid leave or sick pay because those changes are not the result of a departure from normal pay arrangements.
    • Where pay does vary by time, variations from unpaid leave and sick pay would need to be shown on payslips.

activpayroll has previously published guidance on the new payslip regulations, while the Department for Business, Energy and Industrial Strategy (BEIS) has published examples of how the new rules will  work.

Pension contribution changes: The law requires minimum contributions to auto-enrolment pension schemes - from employers and employees - to increase over time as part of a schedule known as ‘phasing’. The previous phased increase came in April 2018, and the next is due on 6 April 2019.

Both employers and employees contribute to auto-enrolment schemes, but employers have the added obligation of ensuring correct minimum contributions are being made. Employers may choose to contribute more than their minimum rate, or even contribute the total minimum to leave their employees with a 0% contribution. The contribution rate schedule is as follows:

Phase Date

Employer Contribution (Minimum)

Employee Contribution

Total Contribution (Minimum)

6 April 2018 - 5 April 2019

2%

3%

5%

6 April 2019 onwards

3%

5%

8%

Further information on the auto-enrolment pension increase can be found in our previous article.

Learn more about the UK’s tax and social security system in our dedicated UK Global Insight Guide.