10. Linda Pullan - Important Changes to Payroll

Important Changes
to Payroll
Presenter:
Linda Pullan,
Head of Payroll Alliance
Peoplesoft Day
1

Agenda
• Apprenticeship levy
–avoiding the common errors
• Budget changes to Optional Remuneration
Arrangements including salary sacrifice
• Proposed changes to Termination Payments
• Off payroll working in the Public Sector
And
• The new Employment Status Tool
2

Apprenticeship Levy
 All employers, not just large employers, are
potentially liable to pay the Apprenticeship Levy
 But only those whose pay bills
exceed £3million over the year will pay
 This is because there is an Apprenticeship
Allowance which is offset against the Levy of
£15,000 per annum
 However, if your Apprenticeship Levy is
less than £15,000 you cannot claim
the rest of the Allowance in cash
 Less than 2% of UK companies will be liable
to pay the Levy this year
Peoplesoft Day 3

Apprenticeship Levy
Commencement date April 2017
- first AL calculations made on tax week/month 1’s
pay bill
First payment to HMRC was due 19th/22nd May 2017
with monthly PAYE remittance
Apprenticeship Levy is calculated each payday
the AL allowance is set as an annual figure
divided into 12 equal amounts across the tax year.
Peoplesoft Day 4

Apprenticeship Levy
What is the Pay bill?
 The total annual earnings that attract Class 1(secondary) NIC:
- Salary/Wages/Bonuses/Commission and Allowances
Plus:
 All BIKs that attract Class 1 (secondary) NICs
Exclude:
 All BIKs that attract Class 1A NIC
 PSA’s (Class1B NIC)
Fluctuating Earnings throughout the tax year could mean employers
become subject to AL payments i.e. bonuses, overtime, pay increases etc.
Peoplesoft Day 5

The Pay Bill
Income tax? Class 1 Employer (Secondary)
NICs?
Pay/salary/wages Yes Yes
Bonus/commission Yes Yes
Employer pension contributions No No
Employee pension contributions Tax relief can be claimed subject to limits Yes - they are paid on gross pay,
before deductions
Benefits in kind (e.g. provision of a car,
private healthcare etc.)
Yes, unless one of the limited exemptions applies Yes – if they attract Class 1
Secondary NICs
No – If they attract class 1A NICS
instead
Apprentices under 25 and
Employees under 21
Yes Yes – as all earnings attract Class 1
Secondary NI. Even though no Er’s
NIC is payable until the UST is
exceeded
Termination payments Yes over £30,000 No
What is NI’able Pay?
Peoplesoft Day 6

Peoplesoft Day
Apprenticeship Levy
 A new group Apprenticeship Levy has been added
to the EPS.
 These fields should only be completed
when an AL payment is due.
oData item 187 – Apprenticeship Levy due year to date (net)
oData item 188 – Tax month
oData item 189 – Annual Apprenticeship Levy allowance
amount allocated to that PAYE scheme.
7

Apprenticeship
Levy
- Common Errors
Under 21 year old’s and apprentices under 25
in the calculationExcluding
Overseas employees who are subject
to Class 1 NICsExcluding
Peoplesoft Day 8

Apprenticeship
Levy - Common
Errors
Employees based in Scotland!Excluding
For Allowance for each connected companyClaiming
Peoplesoft Day 9

Apprenticeship Levy – Calculation
Example 1
• Month 1 pay bill of £500,000
• The calculation and sum due will be:
• AL sum: 0.5% x £500,000 = £2,500
• Offset - £1,250
o APL payment
• £2,500 - £1,250 = £1,250
o EPS Reporting
• Data item 187 – Apprenticeship Levy due year to date - £1,250
• Data item 188 – Tax month – 1
• Data item 189 – Annual Apprenticeship Levy Allowance £15,000.
Peoplesoft Day 10

Example 1
• AL sum: 0.5% x £900,000 (M1 + M2) = £4,500
• Offset - £2,500 (2 months)
o APL payment
• £4,500 - £2,500 – £1,250 (M1 payment) = £750
o EPS Reporting
• Data item 189 – Annual Apprenticeship Levy allowance amount £15,000.
Peoplesoft Day 11

Example 1
• AL sum: 0.5% x £1,700,000 (M1 to M3) = £8,500
o APL payment
• £8,500 - £3,750 – £2,000 (M1 & M2 payments) = £2,750
o EPS Reporting
Peoplesoft Day 12

Example1
• AL sum: 0.5% x £200,000 = £1,000
• Offset - £1,250
o APL payment
• £1,000 - £1,250 = £0
o EPS Reporting
• Data item 187 – Nothing to report
• Data item 189 – Nothing to report.
Peoplesoft Day 13

Example 2
• AL sum: 0.5% x £400,000 (M1 + M2) = £2,000
o APL payment
• £2,000 - £2,500 – £0
o EPS Reporting
• Data item 187 – Nothing to report
• Data item 189 – Nothing to Report.
Peoplesoft Day 14

Example 2
• Month 3 pay bill of £800,000 (including annual bonus)
• AL sum: 0.5% x £1,200,000 (M1 to M3) = £6,000
o APL payment
• £6,000 - £3,750 – £0 (M1 to M2 payments) = £2,250
o EPS Reporting
Peoplesoft Day 15

HMRC Official
Guidance
• HMRC has published their own
internal manual on Apprenticeship
Levy at:
https://www.gov.uk/hmrc-internal-
manuals/apprenticeship-levy
Peoplesoft Day16

The Apprenticeship Service (formerly DAS)
• Registration for Digital Bank Account commenced January 2017
• April 2018 full roll out to all companies in England
whether levy paid or not
• Apprenticeships commencing May 2017 will be funded
by this scheme.
Peoplesoft Day 17

Devolved UK Arrangements
A funding deal for the apprenticeship levy for Scotland, Wales
and Northern Ireland has been agreed
• Based on a population share of the levy
• UK government will manage difference between
levy forecast and levy revenues
• The agreement is in line with the general approach
to sharing UK wide revenues
• Levy expected to be embedded by 2019-2020
• Each administration will decide
how to allocate their own funding.
Peoplesoft Day 18

Off Payroll
Working
in the
Public Sector
Peoplesoft Day 19

Off Payroll Working in the Public Sector
• Public sector, agencies & third parties supplying workers
to public sector are affected by new rules from 6 April 2017
• The new measure will apply to contracts entered into
prior to 6 April 2017
• Where applicable workers will be paid net of tax & NI
via engager’s payroll
• Services provided via an intermediary (Personal Service Co.)
are affected. If the worker had contracted directly with the client,
the worker would have been an employee
Peoplesoft Day 20

Where the worker is paid via the engager’s payroll it will
not be necessary for the engager to:
• Pay statutory payments
• Auto enrol the worker
• Deduct a student loan
• Or provide a payslip
– but must provide a statement of payment and deductions
Peoplesoft Day 21

• The new rules will not impact on direct hiring via agencies
(where worker is employed by an agency or umbrella and
in PAYE & NIC)
• The new rules do not apply if under IR35 rules the contract
would come out as self employed
• Does not impact on Managed Service Companies
Or
• Where whole service is contracted out
Peoplesoft Day 22

• The new rules apply to work completed prior to 6 April 2017
where payment is made after 6 April 2017
• They also take precedence over CIS
• Updated guidance:
https://www.gov.uk/guidance/off-payroll-working-in-the-public-
sector-reform-of-intermediaries-legislation
Peoplesoft Day 23

HMRC Online Employment Status Tool
• HMRC launched the new Employment Status Service in March 2017
• It provides users with HMRC’s view of employment status
• The new Employment Status Tool will deal with all types of workers
not just public sector
• Users are encouraged to go into the Status Tool several times
if necessary during a period of 30 days
• The outcome can be saved as a PDF and customised
• New online Employment Status Service
https://www.gov.uk/guidance/check-employment-status-for-tax
Peoplesoft Day 24

Salary Sacrifice
and
Flexible Benefits
Peoplesoft Day 25

Salary Sacrifice and Flexible Benefits
• Many tax/ employer NI savings removed from
6 April 2017
• Exempted benefits:
o Pensions and pension advice
o Childcare
o Cycle to work
o Ultra-low emission cars
• Schemes in place prior to April 2017 protected
………until April 2018
• Cars, accommodation, school fees protected
………until April 2021
• Unless there is a change or renewal of the arrangement
Peoplesoft Day 26

Peoplesoft Day
Schemes no longer in scope:
1. Salary sacrifice / exchange
2. Flexible benefits where an employee can choose
between a tangible benefit or cash
3. Where the employer provides benefits over
and above their salary and offers a cash alternative
Where employees are offer a benefit or cash alternative,
the employee must be taxed on the higher of the two
27

Peoplesoft Day
 Schemes in scope:
1. Pensions including pension’s advice
2. Childcare voucher or workplace nurseries
3. Directly employer contracted childcare
4. Cycle to work including accessories
5. Cars with emissions at or under 75 CO2/km
 Flexible Benefits where intangible benefits can be purchased,
such as:
 Annual Leave
 Flexible working.
28

Termination
Payments
Peoplesoft Day 29

Termination
Payments
Post Budget 2016 Press Release:
From April 2018
 Clarification of, and tightening the rules
about the taxation of termination payments
- All payments in lieu of notice and certain
damages payments are taxable and NI’able
as earnings
- Removing foreign service relief
30

Termination
Payments
Post Budget 2016 Press Release:
 Aligning the employer NICs and tax
treatments
of termination payments
 Employers to pay NICs on the elements of
termination payments that exceed £30,000.
 It is expected to be Class 1A liability
31

Peoplesoft Day
The General
Election
Effect
32

General Election effect
 As a result of the ‘snap’ General Election the Finance Bill 2017
had to be reduced
 The “slimmed down” bill had to be enacted on the 27th April
 The reduction meant;
 72 of 135 clauses were removed
 18 of 29 schedules were removed
 The final act dropped from 762 to 148 pages!
 Allows Parliament to review removed items in detail
through more debates after the election.
Peoplesoft Day 33

General Election effect
Some of the clauses removed, temporarily
 Making Tax Digital
 Highly contentious – possibly pushed back
to April 2018 at the earliest
 Pensions Advice tax free limit due to be
increased to £500
- Employers may have offered advice
expecting the increase
 Changes to the taxation of termination payments
- Tax and NI on PILON, Class 1A on Payments
over £30k.
Peoplesoft Day 34

Example 1
• Jack has been working for the company for 20 years
• He is being made redundant but will be working his 12 weeks’ notice
Contractually he is entitled to:
• Statutory redundancy £13,891
• Salary £30,000 per annum
• He is also being paid compensation for loss of office of £25,000
• Total termination payment £38, 891
• Tax due on £8,891
• Potentially under new rules his employer is liable to NI at 13.8% on £8,891
Peoplesoft Day 35

Example 2
• Jean’s employment has been terminated with immediate effect
• Her employer will pay her Pay in Lieu of Notice of £25,000
(non contractual)
• And a payment for loss of office of £35,000
• The PILON is tax free and she will be taxed on £5,000 of her compensation
for loss of office as it exceeds £30K
• Under proposed new rules the PILON would be taxable and NI’able
regardless of whether or not it is contractual or custom and practice
• And her employer would pay secondary NI contributions on £5,000 as well
Peoplesoft Day 36

Thank you for listening
Any questions?
www.payrollalliance.co.uk
Peoplesoft Day 37

10. Linda Pullan - Important Changes to Payroll

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