Testing, testing, for the new PT…

01 June 2022

Samantha O’Sullivan MCIPPdip, policy lead at the CIPP, guides payroll professionals on the mid-year change to National Insurance (NI) from 6 July 2022

If July wasn’t already a busy period in the payroll professionals’ calendar, the Chancellor of the Exchequer, Rishi Sunak, gave us some extra work to do for the 2022/23 tax year, with announcements delivered in the spring statement 2022.

An increase to both the primary threshold (PT) and lower profits limit was confirmed, meaning they will change from £9,880 to £12,570, from 6 July 2022. This change will align the rates with the income tax personal allowance. This means that, from 6 April 2022 to 5 July 2022, the PT will be set at £190 per week (£823 per month), but from 6 July 2022, this will rise to £242 per week (£1,048 per month).

Primary threshold

Government publications state that, from July 2022, approximately 70% of workers will pay less National Insurance (NI) than they did in 2021/22, even after accounting for the introduction of the new health and social care levy. Additionally, roughly 2.2 million individuals won’t pay class 1 employee NI, class 4 self-employed NI or the health and social care levy once the threshold is increased.

The rationale behind implementing the change part-way through the tax year was to give software developers and employers sufficient time to update their systems and to implement changes.

Testing

As seasoned payroll professionals, we’re used to testing software at the beginning of a new tax year to ensure parameters and thresholds in our chosen payroll software are working correctly. However, most of us wouldn’t expect to be testing changing thresholds part-way through the tax year. In fact, many commentators have stated they can’t remember a time when a change to NI thresholds was introduced within the same timeframes.

The 2022/23 tax year has seen many new elements that would have required thorough testing, including, but not restricted to:

five new NI categories (F, I, S, L, V)
two new secondary thresholds (freeport upper secondary threshold, veterans’ upper secondary threshold)
an increase to the employment allowance (£4,000 to £5,000)
last, but by no means least, the introduction of the health and social care levy, implemented as a 1.25% increase to NI for the 2022/23 tax year only.

This indicates that the number of test scripts generated for this tax year’s testing would have increased substantially. But please don’t file those test scripts away just yet, as you’ll need to adapt them and apply them to the first pay period that falls on or after 6 July 2022, to ensure the new PT is working correctly within software.

Don’t forget that it’s not just the calculation capability of software that needs testing. Testing will also need to be applied to reports that are generated and extracted from the software, to ensure the results are as expected. If these reports are produced for any internal / external stakeholders, they’ll also need to ensure they’re happy with the results.

Compliance

‘Compliance’ may sound daunting but based on the standard dictionary meaning, compliance is what we, in payroll, do, day in, day out: “…obeying a particular law or rule, or of acting according to an agreement” – it comes with the territory and it’s what we do best.

A payroll department’s main objective is to pay employees, workers and pensioners accurately and on time. Anyone who has undertaken any of the CIPP’s training courses or qualifications will have this instilled in their brains. Compliance ensures this objective can be consistently achieved.

We will all be used to the checks and reports produced every pay period. They may sit as a tick box on your check list, or come as the next step in your workflow, but they’re all an essential part of adhering to compliance.

Once any testing has taken place, ensure that checklists, workflows and anything else that’s fed from a change is also accounted for. Whether that be a letter the human resources team or the pension department generates, stakeholders need to be made aware of any changes that could, in turn, impact on their processes and procedures.

Training documents or procedures may need to be updated to reflect any changes. This is a key element of ensuring compliance is maintained.

Best practice top tips

spot check several payslips each pay period to ensure the gross to net calculations are correct – this also helps to maintain your manual calculation knowledge, which is crucial
allow sufficient time to test your software as soon as you’re aware of new changes and updates
re-use those trusty test scripts – don’t work hard once a year to forget about them when you need them next. Scripts can be amended to accommodate all the latest changes
the responsibility for changes being implemented correctly within the payroll software ultimately lies with the payroll professionals who are using that software. So, it’s crucial that relevant testing and reviews are applied to any changes ahead of implementation.
If you want assurance that your payroll team is dedicated to compliance, to know their processes are robust and that lifelong learning and development is planned and encouraged, then the CIPP’s Payroll Assurance Scheme (PAS) can offer you that confidence.

The PAS is the prestigious gold standard for both people and payroll processes, and is the much-coveted award in the payroll industry.

For more information on the PAS accreditation and the benefits to your organisation, please email us at [email protected].