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New Tax Year Brings Changes to U.K. Payroll

 

By Samantha Mann, MAAT MCIPPDip

UKTaxThe U.K. tax year runs from 6 April until 5 April. The reason for this oddity dates to medieval times when the Gregorian calendar was first introduced.

Prior to this, the Julian calendar was in widespread use, but it didn’t align with the solar year, to the tune of 11½ minutes each year. Although this is only a short period of time when looked at over a single year, these minutes accumulated over several years. Meanwhile, the rest of Europe had been using the Gregorian calendar since 1582. Britain, however, refrained from making a change until 1752, by which time the tax year had to be extended by 11 days in order to create alignment with the rest of Europe. This resulted in the tax year beginning on 5 April.

Later, in 1800, due to an errant leap year, a further change moved the start to 6 April, and there it has remained since. On occasions, mutterings can be heard about moving to a calendar year, but so far no government seems inclined to make such a change to the historic U.K. tax system.

Regardless of the dates, however, a new tax year—and this is probably true for tax regimes around the world—will bring about change. Below are some of the changes that will impact the U.K. beginning in April 2020.

National Minimum Wage (NMW) Increases

In 2015, when it was first launched, the National Living Wage (NLW) set a target, which was to achieve a rate of 60% of median earnings by April 2020. At the time, this was predicted to return a pay rate in excess of £9 per hour.

The Low Pay Commission (LPC) carried out its review during the summer of 2019, and, even though there was no Budget in the autumn of 2019, the government published its response to the LPC recommendations accepting all rate increases recommended.

For pay reference periods that begin on or after 1 April, the rates will be:

  • NLW for a worker aged over 25—£8.72 per hour
  • NMW for a worker aged 21 to 24—£8.20 per hour
  • NMW for a worker aged 18 to 20—£6.45 per hour
  • NMW for a worker aged 16 to 17—£4.55 per hour
  • The Apprentice rate for apprentices aged under 19 or in their first year of apprenticeship will increase to £4.15 per hour

The accommodation offset will increase to £8.20 per day.

These rates will apply to the first full reference period on or after 1 April. As rate increases account for one of the biggest risk areas for employer error, an example may help to illustrate how this works.

Let us consider a weekly paid employee with a pay reference period that runs from Monday to Friday. In 2020, the employee will have a pay reference period that runs from the following:

  • Monday, 30 March to Friday 3 April—which can be paid at the rates in existence prior to the increase on 1 April 2020
  • Monday, 6 April to Friday 10 April—these hours must be paid at the relevant increased rate of NMW/NLW

If you are wondering if the National Living Wage (NLW) achieved 60% of median earnings, the answer is yes. This is despite all of the political upheaval in recent years as a result of the referendum and the U.K.’s decision to exit the European Union.

Looking ahead, the Chancellor announced that the NLW is to be set at a new target which, if achieved, will see it become a rate that is 2/3 of the median earnings. We await the Budget to confirm.

NLW Coverage Extension

In the same announcement, the Chancellor also confirmed the government’s intention to reduce the age threshold for the NLW so that it applies to those aged 23 and older from 2021, and to those aged 21 and older within five years.

This follows the LPC review and recommendations made regarding youth rates, and we look forward to the Budget to hear the details of the future policy framework for the NLW, including the role of the LPC, which is to have a new remit.

“We are very pleased that the Government has accepted our advice to lower the age of eligibility to the NLW from 25 to 21,” said Bryan Sanderson, Chair of the LPC. “Doing so in a phased approach balances ambition for the pay of young people with caution towards the impacts on businesses and the most vulnerable workers in this group.”

Statutory Bereavement Pay, Leave

The Statutory Bereavement Pay and Leave Bill was initially introduced to Parliament as a Private Members Bill. It received cross-party support in its journey to become law.

At the time of writing, we are still waiting for the regulations that will provide the details and enact this into law. However, the Parental Bereavement (Leave and Pay) Act will give all employed parents a day-one statutory right to two weeks of leave if they lose a child under the age of 18, or suffer a stillbirth from 24 weeks of pregnancy.

Parents will be entitled to this leave irrespective of their length of service with their employer, and the entitlement will apply in respect of each child.

Similar to other child-related statutory payments, bereavement pay will require at least 26 weeks of continuous service, and is expected to be paid at the statutory pay rate and, in line with other family statutory payments, will be recoverable at a rate of 92% for large employers and 100% plus a rate of NIC compensation for employers that qualify for the small employers relief (currently 3%).

This law applies to Great Britain (England, Scotland, and Wales), but mirroring legislation for Northern Ireland is expected.

This will not prevent employers from going beyond these provisions and providing more generous allowances. This is the first law of its kind in the U.K., and it will support those affected by childhood mortality.

“Losing a child is the most dreadful and unimaginable experience that any parent could suffer and it is right that grieving parents will now be given time to start to come to terms with their loss,” said bill sponsor Kevin Hollinkrake MP when the bill was first passed in 2018.

Full details have yet to be published on gov.uk, but some key features that were issued to software developers in autumn 2019 include:

  • The leave can be taken as a single block, or as two separate weeks
  • Entitlement to pay will be subject to the following qualifying conditions:
    • Must have been continuously employed for at least 26 weeks at the relevant week (the relevant week is the week, ending with a Saturday, before the week the child dies)
    • The average weekly earnings (AWE) are at least at the lower earnings level (in force at the relevant week)
    • Must have given the employer the correct notice
    • Must have completed the employee declaration
  • Employed parents will have a window of 56 weeks to use the entitlement
  • Notice requirements will be flexible and will distinguish between leave taken very soon and leave taken at a later period
  • Evidence requirements will mirror existing requirements used for other family leave and pay rights, where it is practicable to do so

And Finally …

It seems that these articles always end with “and there is more,” but in this case there is—so much. Not every change makes the headlines—indeed so many changes don’t make the headlines, which simply highlights the importance of payroll professionals remaining vigilant to ensure their knowledge stays up to date and accurate.

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SamanthaMann_2019

Samantha Mann, MAAT MCIPPDip, is Senior Policy and Research Officer for the Chartered Institute of Payroll Professionals (CIPP).