An introduction… Legislation Changes for 2016-17
What payroll changes will you see this year?
- Income Tax
- National Insurance
- Student Loans
- Form P46
- Statutory Payments
- Employment Allowance
- Contractor Monthly Returns
- National Living Wage
Income Tax Allowances
The basic personal allowance for the tax year starting 6 April 2016 has increased to £11,000 and the standard tax code will be 1100L.
As a result there has been a general uplift of tax codes with suffix ‘L’ which has been increased by 40. HM Revenue & Customs (HMRC) are also issuing individual tax codes for the tax year starting 6 April 2016 for some employees. Employers should have received these by the end of March 2016.
Income Tax bands and rates
The income tax rates and income tax bandwidths for the tax year starting 6 April 2016 are shown below:
|Basic Rate||20%||£1 to £32,000|
|Higher Rate||40%||£32,001 to £150,000|
|Additional Rate||45%||£150,001 and above|
National Insurance contributions (NICs) earnings limits and thresholds
- The main rate of primary Class 1 NICs remains unchanged at 12%
- The Class 1 secondary rate of NICs remains unchanged at 13.8%. This rate also applies to Class 1A and Class 1B NICs
- The additional rate of primary Class 1 NICs remains unchanged at 2%
- The Lower Earnings Limit remains unchanged £112 per week
- The Primary Threshold (for employees) remains unchanged £155 per week
- The Secondary Threshold (for employers) remains unchanged £156 per week
- The Upper Accrual Point remains unchanged at £770 per week
- The Upper Earnings Limit (UEL) has changed to £827 per week
- The Upper Secondary Threshold (for employers) is now £827 per week
- The new Apprentice Upper Secondary Threshold (for employers) is now £827 per week*
The new Apprentice Upper Secondary Threshold*
If you employ an apprentice who is under the age of 25, from 6 April 2016 you no longer have to pay employer Class 1 NICs on their earnings up to the new Apprentice Upper Secondary Threshold.
Category letters A and M are no longer valid and should be replaced by category letter H.
To qualify, your apprentice must be under 25 years old, and working towards an apprenticeship in the UK which follows a government approved framework or standard.
To apply the relief, you must also hold either a written agreement between you, the apprentice and the training provider; or evidence of government funding for the apprenticeship.
End of contracting-out
Contracting-out of the additional State Pension ended on 5 April 2016. This means that from 6 April 2016 employees will automatically be brought back into the State Pension scheme and will no longer be able to use a contracted-out salary related occupational pension scheme to contract out of the State Scheme.
Employees may, depending on their level of earnings, start to accrue entitlement to the new State Pension instead.
Eligibility for the contracted-out National Insurance contributions (NICs) rebate of 3.4% for employers and 1.4% for employees will also cease from this date.
Contracted-out National Insurance tables and category letters D, E, I, K, L, N, O and V will no longer be valid and should be replaced with Standard National Insurance tables and category letters A, B, J, M, P, Q, R, T, Y, and Z.
From April 2016 there are now two student loan plan types which will be known as Plan 1 and Plan 2. Each plan will have a different threshold. You will need to deduct student loan repayments using the appropriate plan type.
For the tax year beginning 6th April 2016, the thresholds are £17,495 for Plan 1 (which includes your employees already repaying student loans), and £21,000 for Plan 2.
From March 2016 the SL1 start notice issued by HMRC will show which student loan plan type you should make deductions against for an employee due to start repayment from April 2016. In addition to this:
- From 6 April 2016 a new starter declaration checklist is provided and will prompt you to ask new employees about their student loan plan type**
- Form P45 will only indicate whether an employee is already repaying a student loan. It will not indicate a plan type and so you must ask the new employee for this information
- If your employee does not know their plan type you should use Plan 1 by default and ask your employee to check their correct plan type with Student Loans Company.
Are you still completing form P46?
Do you know that form P46 is no longer used? This form has been replaced with the ‘starter checklist’ and you can use this to help you get the necessary information from your employee before their first pay day.
**This has been updated from 6th April 2016 to include the new legislation relating to student loans. The form can be found at the following link:
Statutory Payments Rates
The Statutory Sick pay rate remains unchanged at £88.45
The standard rate of Statutory Maternity Pay, Adoption Pay, Paternity Pay and Shared Parental Pay also remains unchanged at £139.58
The general rate at which employers can recover Statutory Maternity, Adoption, Paternity and Shared Parental Pay from HMRC remains at 92%. Small employers continue to be able to recover 100% plus an additional compensation rate. The additional compensation rate remains at 3%.
Eligible businesses and charities reduced their Employer Class 1 National Insurance contributions bill by up to £2,000 in 2015-16 by claiming the government ‘Employment Allowance’. This will continue in 2016-17 and from 6thApril 2016, the maximum value of the allowance has risen to £3,000 a year.
If you already claim the allowance and continue to be eligible to claim, your claim will be ongoing and you just need to continue making the appropriate deductions from the amount of Employer Class 1 National Insurance contributions you would have paid to HMRC.
However, from 6 April 2016, if you’re the only employee in a company, and also the director, your company will no longer be eligible for the allowance.
Contractor Monthly Returns
After April 2016, any employer currently within the Construction Industry Scheme (CIS) now has to send their monthly returns online. HMRC will no longer accept any paper CIS returns from the new tax year.
This change is one of a series of improvements HMRC are making to CIS to increase efficiency and accuracy and to reduce administration. Other changes will include the ability to amend returns online and an online message/alert service.
National Living Wage
Since 1st April 2016, the government has introduced a new compulsory National Living Wage (NLW) for workers aged 25 and above. This has been set at £7.20 per hour; a rise of 50p relative to the current NMW rate.