01 March 2021

Lora Murphy ACIPP, CIPP policy and research officer, identifies key changes for payroll professionals for the new tax year

The pandemic has touched almost every element of daily life, and this most definitely extends to the work carried out by payroll professionals, who have had to administer government schemes, implemented at high pace to attempt to protect both businesses and workers through uncertain times. This is in addition to the standard responsibility of payroll departments to ensure that employees are paid, both accurately and on time.
As we rapidly approach the new tax year, 2021/22, which commences on 6 April 2021, it feels appropriate to provide a summary of anything that will have a further impact on the work carried out by payroll professionals, so that they can begin to prepare now.

Coronavirus job retention scheme
At the time of writing, this scheme has been extended until the end of April 2021. The level of government support will remain at 80% of usual earnings until that time, with employers paying staff for any hours they work, and also employer National Insurance contributions (NICs) and minimum employer auto-enrolment pension contributions for any of an employee’s usual hours they have been placed on furlough.
What will happen beyond the end of April cannot currently be predicted. Might the job support scheme, initially intended to commence from 1 November 2020, be re-introduced; and, similarly, might the job retention bonus be redeployed at some point?

We can only wait to see what further announcements there will be, and some detail may be provided within the Budget delivered on 3 March 2021.

Off-payroll working reforms
Off-payroll working reforms, designed to ensure that individuals working like employees, but via their own personal service company (PSC), or other intermediary, pay broadly the same income tax and NICs as individuals who are directly employed, come into effect from 6 April 2021. The reforms were initially due to be implemented from 6 April 2020, but this was postponed due to the impact of the pandemic.

The reforms essentially place the responsibility for determining whether an individual falls within off-payroll working rules on the end-engager or client to which or whom the contractor is providing their services. The onus for paying tax and NICs will also shift to the fee-payer, which is the agency that contracts directly with the PSC. In simple supply chains, the fee-payer could be the same as the client, or in more complex arrangements this would typically be the agency that contracts directly with the PSC.

Briefly, new responsibilities are as follows:
Client – Determines whether impacted individuals fall within off-payroll working rules, which could be done using HM Revenue & Customs’ (HMRC’s) check employment status for tax (CEST) tool; however, use of the tool is not mandatory (http://ow.ly/weP630rtH6G). Issues status determination statement to contractor and to the fee-payer (if different to the client).

Fee payer – Ticks the ‘off-payroll worker’ indicator for any individuals identified as falling within the rules, on payroll software. Ensures that any ‘deemed employment payments’ are processed correctly through payroll. Issues P60 certificate to off-payroll workers within the required timeframes, and form P45 when they leave. There is no requirement to provide payslips, but it would be good practice to do so.

...beyond the end of April cannot currently be predicted...

Student loan plan 4
From 6 April 2021, a new student loan plan type will be introduced because Scotland made a commitment to raise its student loan earnings threshold to £25,000 from that point. Referred to as ‘student loan plan 4’, it will apply to all new and existing Scottish borrowers; and any Scottish borrowers currently under student loan plan 1 will be moved across to plan 4 from the start of the new tax year. HMRC will notify employers via the current SL1 notification process and will ensure that this is done with adequate time ahead of 6 April 2021. New starter checklists and SL1 documents will be revised to include plan 4, but there will be no adjustments to either the form P45 or the P60 certificate, where deductions for plan types 1, 2 and 4 will be included within the undergraduate field.

Implications of Brexit
Thursday, 31 December 2020, marked the end of the transition period for Brexit, which meant changes would be implemented from 1 January 2021. Brexit and the full range of its implications are complex and far-reaching, but there are a few key elements that will impact the work of payroll professionals:

  • Employment rights – The government has committed not to reduce the standards of workers’ rights from EU laws retained in UK law and will ensure that new legislation changing those laws will be assessed as to whether they uphold this commitment.

  • Reciprocal social security arrangements – New guidance is available which helps in checking which country’s social security contributions must be paid, where a worker from the UK is working in the European Union, Norway, Iceland, Switzerland or Liechtenstein (http://ow.ly/8fg130rtHj2).

  • Right to work checks – Guidance is available on changes to right to work checks following the end of the transition period (http://ow.ly/8Zdu30rtHjt).

Minimum wage increases
Within the 2020 Spending Review, delivered in November, it was revealed that the national living wage and national minimum wage limits would increase for pay reference periods commencing on or after 1 April 2021. The government accepted the recommendations made by the Low Pay Commission in relation to the new hourly rates, which are as follows:

  • individuals aged 23 and over: £8.91
  • 21–22-year-olds: £8.36
  • 18–20-year-olds: £6.56
  • 16–17-year-olds: £4.62
  • apprentices: £4.30.
  • The daily accommodation offset will increase to £8.36.

Note the change to age 23 for the minimum/living wage.

...statutory powers effective 6 April 2021 to correct CIS deduction amounts...

NICs relief for employing veterans
Following an election manifesto pledge to “reduce [NICs] for employers if they employ ex-Service personnel”, the government published a consultation (http://ow.ly/fnqs30rtHvX) which explored the more intricate details of providing businesses that employ veterans with an employer’s NICs holiday. What is known is that for the first tax year of the policy’s implementation (2021/22), there is no real time information (RTI) solution so employers will need to pay the associated NICs and then claim this relief the following tax year. From 2022/23, an RTI solution will be established (see page 9 for further information).

Thresholds and rates
In the 2020 Spending Review, it was confirmed that both tax and class 1 NICs thresholds would be increased for tax year 2021/22, in line with the consumer price index figure for September 2020, which was 0.5%.
Additionally, the statutory payment rates for 2021/22 have been confirmed. The statutory weekly payments for parental leave will increase to £151.97 per week, and statutory sick pay will be uplifted to £96.35 per week.

Tackling CIS abuse
In early 2020, HMRC launched a consultation which focused on the issue of abuse within the construction industry scheme (CIS) (http://ow.ly/yEWQ30rtHPc). In recognition that essential taxes revenue is being missed in this industry, HMRC will be granted new statutory powers effective 6 April 2021 to correct CIS deduction amounts incorrectly claimed by sub-contractors in their RTI employer payment summary returns.
In addition, there are modifications to the previous rules on the cost of materials, deemed contractors, and an extension to the scope of the CIS false registration penalty.

Featured in the March 2021 issue of Professional in Payroll, Pensions and Reward. Correct at time of publication.