HMRC Payroll & Tax Update

HMRC Payroll & Tax Update

The new tax year is approaching and HMRC has issued an update on incoming changes to the UK’s payroll and tax system.

2020 will bring a variety of new tax regulations, benefits, and adjustments, many of which were announced in the 2018 Autumn Budget. With the 2020/21 tax year approaching, it’s time to prepare your business, your payroll, and your employees with our guide to the incoming changes.

ULEVs

As part of the wider effort to create a more sustainable future and better air quality in towns and cities, from 6 April 2020, the car and fuel benefit calculation will expand to include 11 new bands for ultra low emission vehicles (ULEVS).

This will include a separate band for vehicles with zero emissions - that is, with CO2 emissions of less than 50g/km. Employers will need to provide their cars’ zero-emission mileage to payroll departments.

Short Term Business Visitors

The existing special arrangement (Regulation 141) for short-term business visitors (STBV) will change on 6 April 2020 - and employers will be required to join Appendix 8. Employers will be able to keep their existing PAYE reference number. In more detail:

  • Reg 141 will end on 6 April 2020, and be replaced by Appendix 8.
  • The UK’s workday limit will increase to 60 days (from 30 days).
  • For 2019/20 the filing deadline for annual returns will continue to be 19 April 2020 - the payment deadline will continue to be 22 April 2020.
  • For 2020/2021, the filing and payment deadlines for the annual return will be 31 May.

The changes will not affect the way annual returns and payments are submitted. HMRC will contact all employers and agents who are affected by the changes and provide further information closer to the implementation date. More information on the special arrangement is available in the government’s PAYE manual.

Employment Allowance

From 6 April 2020, the Employment Allowance (EA) will only be available to employers with total Class 1 NIC liabilities of £100,000 or less in the previous tax year.

  • If an employer is part of a connected group of companies, the £100,000 limit applies to all companies.
  • The EA can only be claimed once - employers must decide which PAYE scheme to claim against.
  • EA claims will not roll over year by year, and must be submitted annually.

PAYE Settlements and Income Tax Codes

Simplifying PAYE Settlement: From 6 April 2019, people living in Wales have paid different rates of income tax to other parts of the UK. Similarly, employees in Scotland also pay a different rate of income tax. This rate-disparity affects employers who submit PAYE Settlement Agreements which cover all tax and NIC on irregular or minor expenses and benefits for their employees.

In order to simplify the PAYE Settlement process for Welsh employees, employers will need to:

  • Record the employees that are subject to the Welsh tax rate by identifying the tax codes - which are prefixed with ‘C’.
  • Establish the numbers of employees who should be paying Welsh income tax rates, Scottish income tax rates (which are prefixed with S), or English and Northern Ireland rates.

Employees should ensure HMRC has their correct address information on their personal tax account.

Updating Tax Codes: Employers should have received a P9 tax code notification from HMRC prior to the start of the tax year in order to update their employees’ tax code information. If employers did not act on this information, they may have subsequently received a P6 notification with updated tax code information.

This update may need to be applied in order to implement the different ‘S’ and ‘C’ tax codes for Scottish and Welsh employees.

Termination Payments

Under current rules, the Post-Employment Notice Pay (PENP) formula for Termination Awards can deliver differing results depending on when notice is given. The problem exists for employees who are paid in 12 monthly installments but have notice periods expressed in days or weeks.

In this situation, employers may use 30.42 as the value of P in the PENP formula to work out the Termination Award - when this is in favour of the employee.

Large Business Risk Reviews

The system by which HMRC rates large businesses for risk has changed. The new Business Risk Review+ (BRR+) is based on businesses’ behaviour and approach to paying tax: under the current BRR system, businesses are organised into two risk categories, ‘low risk’ and ‘non-low risk’. Under the new BRR+ system:

  • Large businesses are categorised into 4 risk groups: low, moderate, moderate-high, and high-risk.
  • Customer behaviour assessments will be introduced in 3 categories: Systems and Deliveries, Internal Governance, and Approach to Tax Compliance.
  • ‘Low risk’ will be defined across the 3 behavioural categories
  • Each business will receive a risk rating.

Student Loans

GNS Messages: In September 2019, HMRC began issuing Generic Notification Services (GNS) messages to the PAYE accounts of employers that had been issued with notices to stop making Student Loan and Postgraduate Loan deductions from their employees’ wages. The GNS messages instruct employers to stop the loan deductions at the next available pay day.

Employers will receive a maximum of 2 GNS messages per year, per employee and loan type for which they incorrectly make deductions. Information for employers on Student Loan repayments is available online.

Repayment Thresholds: The Department for Education has confirmed that thresholds for the repayment of Plan 1 and Plan 2 Student Loans are increasing in April 2020.

  • Plan 1 Student Loans: £19,390 (from £18,935)
  • Plan 2 Student Loans: £26,725 (from £25,725)

Deductions for both types of loans will be made at 9%.

The threshold for Postgraduate Loan deductions in 2020/21 will remain the same at £21,000 - and maintain the same deduction rate: 6%.

Self-Assessment Tax Returns: The Postgraduate Loan was introduced in April 2016, the earliest dates for borrowers to begin repayments are:

  • April 2019 for PAYE customers
  • April 2020 for Self Assessment customers

Student and Postgraduate Loan borrowers should include their repayments in their Self-Assessment tax returns. The SA system will calculate the appropriate deductions for plan types.

Tax-Free Childcare

Employers could save up to £2,000 of childcare per child with a Tax-Free Childcare account for costs such as:

  • Childminding
  • Nannies
  • Before/after school clubs
  • Holiday clubs

The government will ‘top up’ childcare accounts to help employers reduce costs and make savings. More information is available on the Childcare Choices website.

Easier Payments to HMRC

HMRC has made it easier for employers to pay liabilities using the green ‘pay now’ button included on certain ‘how to pay’ sections of the HMRC website. The button offers a quick, secure payment option using Direct Debit, Debit or corporate credit card, or Bank Transfer methods.

On 3 September 2019, the ‘pay now’ facility was extended to the following ‘how to pay’ guides:

  • Class 2 NIC and Class 3 NIC
  • Insurance Premium Tax
  • Air Passenger Duty
  • Biofuels for gas or road use
  • Gaming & Bingo Duty
  • General Betting Duty, Pool Betting Duty and Remote gaming
  • Landfill Tax
  • Aggregate Levy
  • Climate change Levy
  • Beer Duty

For more information on tax and payroll obligations in the United Kingdom, browse activpayroll’s UK Global Insight Guide.

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