Ask any seasoned payroll professional and they will invariably tell you that the transition into a new financial year brings about a raft of changes, all of which have to be kept on top of and integrated within the broader function of the regular pay cycle.
Noncompliance with many of these legislative shifts can often lead to severe financial and legal penalties, meaning it becomes top responsibility for payroll professionals across all sectors to reconcile themselves to these changes in time for the advent of the new tax year.
So how exactly do payroll teams keep on top of the myriad of changes to legislation all whilst juggling core payroll responsibilities? In order to get an answer, we decided to go straight to the source- partnering with our friends at the Chartered Institute of Payroll Professionals for our latest webinar all about the payroll need to knows for the 2022/2023 tax year.
Backed up by the keen expert insight from the CIPP, we wanted to highlight some of the key changes slated for this year and to offer up advice on how organisations can remain agile and on top of ever shifting legislation, in order to avoid severe penalties as a result of noncompliance.
If you missed the webinar then don’t worry! As we will be taking you through some of the highlights right now.
Changes to Tax
We’re sure payroll professionals across all sectors breathed a sigh of relief when they learned that tax thresholds would be staying the same this financial year compared to the last. Personal allowances will remain at a fixed rate of £12 up until 2026- a welcome buffer for payroll teams.
This breathing room however, still comes alongside a raft of other changes to the taxation process which have to be taken into account. Most notable of which are the increases for personal allowances for married persons or the blind. This year also serves as a time for payroll professionals to look towards the future, with Income tax set to be reduced to 19% in 2024. Although payroll professionals as a rule tend to treat each year’s changes as they come, advice from the wider sector is on the importance of looking ahead and for organisations to prepare.
National minimum wage increase
the national minimum wage is set to increase from April of this year, rising from £8.91 to £9.50 an hour. This boost, which is to affect those aged over 23, represents a pre tax increase of £1074 for full time workers and was officially announced as part of Chancellor Rishi Sunak’s 2021 Budget.
The increase, which has come off the back of recommendations from independent advisors, the Low Pay Commission, represents a welcome boost for those in the lowest income positions and is set to support the living standards of workers as employment levelsbegin to return to pre-pandemic figures.
This is one of the fundamental changes which payroll teams will need to ensure is properly embedded within their organisations ASAP. The financial impact of non-compliance is significant, not to mention the professional embarrassment of being one of those featured in the industry name and shame lists.
National Insurance changes
Another significant change will be the increase to national insurance contributions for all UK workers. As outlined by the Government, the increase is set to last for the course of the financial year commencing on the 6th April 2022 and will see contributions rise by 1.25%, meaning those earning £20,000 a year will pay roughly £130 a year extra.
The increased rate has been billed as a health and social care levy, with the funds generated from the higher bands being ringfenced to support UK health and social care bodies. HMRC have provided messaging around the levy, explaining the increases and one which they heavily recommend that organisations include on all payslips for their personnel.
Coinciding with the levy, all National Insurance rates, aside from that of the UEL (Upper Earnings limit) have changed for this tax year. Employment allowances have also increased to £5,000, based on the previous year’s NI bill.
Advice from HMRC is for payroll teams to push out communication ASAP to all employees in order to ensure that they are made aware of the changes and how it will impact them and be represented within their payslips.
Statutory Sick Pay
Whilst the actual weekly SSP rate will remain the same across this financial year- set for the current tax year at £99.35, a new rates operation will come into force from April 6th 2022 which determines how much you must pay your employees based on the time they have spent off sick. These “qualifying days” are set to undergo change with the unrounded daily rate moving to £14.20.
The most significant change for SSP is the end to COVID rules for self certification for illness. This means the extension for employee self certification of illness has now reverted to 7 days, rather than the 28 granted by the temporary measures.
Another shift of note is the change in reporting: From April 2022, the Earlier Year Update is no longer a valid submission for the previous year’s adjustment. All Payroll teams will need to be aware that FPS will need to be submitted using the late reporting reason H moving forward.
Off Payroll Working
The Government’s decision to extend the existing IR35 rules to the private sector has been a cause of concern for many organisations who will suddenly find themselves faced with a significant increase in their financial responsibilities and compliance demands.
The legislation is designed to mitigate instances of tax avoidance whereby organisations could take advantage of gig economy workers and other similar contractors by having them do the equivalent work of a salaried employee but with fewer HMRC contributions. The new rules will ensure transparency around the use of contractors or intermediary firms, but the changes do bring with it a greater burden for payroll and financial professionals who will have to ensure that their organisations remain compliant.
The latest legislative changes are coming into effect for large and medium businesses in the private sector. These types of organisations are defined in the Companies Act 2006 as:
- Having an annual turnover of more than £10.2 million
- Consisting of more than 50 employees
- Having a balance sheet total of more than £5.1 million.
Any organisations that meet these criteria will need to be aware of the changes in legislation and ensure full compliance and transparency regarding the employee status of any contractors or intermediaries used.
HMRC have defined workers within 3 criteria: – ‘personal service and substitution’, ‘supervision and control’ and ‘mutuality of obligation’. Whilst this is by no means an exhaustive list, these criteria are designed to help organisations determine which workers may fall under the new regulation changes. For further guidance, organisations are recommended to consult the Government’s CEST Tool.
We hope that was a helpful and informative overview of the shifts coming across this financial year. As ever, we’re grateful for the insight of our friends at the CIPP and we trust that their expertise will help shepherd your payroll teams through the raft of changes predicted.
Payroll is an ever evolving environment and the professionals who work within this space understand more than anybody the need for accuracy and compliance and keeping on top of the legislative changes which the new financial year can bring. Fortunately, at Advanced, we firmly believe in the power of new systems and technology to help you achieve more and eliminate the stress and anxiety which is so commonly associated with payroll year end and the advent of the new one.
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To find out more about how Advanced Payroll can transform the way you meet the demands of new legislation and ensure accuracy and compliance throughout the next financial year and beyond, get in touch with one of our friendly team members today.