Payroll – out with the old, in with the new

As we move from one tax year to another, it is a good time to check the information held within payroll to ensure it is up to date. MHA’s head of professional services Karen Hain presents a checklist for firms to consider.

It’s time for law firms to take stock and perform data cleansing routines to reduce the extra work that generally rears itself at this time.

Potential areas for review and checks:

• Employee change of name or title? Have they married and wish to update their details on their records?
• Employee home addresses – there is always one who may have moved home and failed to alert HR or payroll and when their P60 is generated, this suddenly becomes important!
• Missing employee data – such as National Insurance (NI) numbers. Can these be found on documents sent to the employee from HMRC or tax code/student loan notifications send to the employer?
• Directors – have there been any new directorships in the tax year, or resignations? NI contributions may be affected within the tax year, and the start and end dates of the directorships are extremely important, ensuring enough has been paid.

In undertaking these checks now, payroll can be moved into the new tax year with the comfort that the data is correct from the beginning.

Payroll – what’s new for 2022/23?

As in previous years, there are changes to tax and NI contribution thresholds, national minimum wage and statutory payments. Here is a brief overview and quick reference guide:

Tax thresholds 2022-26

Employee personal tax allowance remains at £12,570.00, giving individuals a starting tax code of 1257L.  Any further changes to tax codes will be informed by HMRC via P9 notice at the commencement of the tax year, or P6 throughout the tax year.

National Insurance thresholds and codes

There have been five new NI codes introduced in 2022/23, four of which relate to Freeport status.  These are letters F (Freeport), I (Freeport – married women/widows reduced rate), L (Freeport Deferment) and S (Freeport State Pensioner).

The 5^th new NI code is V, which can be used for Armed Forces veterans with as little as one day’s service, when they enter civilian life and begin work.  It can only be used for the first year of employment, be that with one employer for the full 12 months, or several employers in that 12-month period.

One thing to note is that following the Spring statement in March 2022, the primary threshold (the level at which an employee will be subject to NICs) has increased and from Month 4/Week 14 of the tax year, will be the same threshold as the personal tax allowance.

National minimum wage

From 1 April 2022, the national minimum wage rates are increased as follows:

For employees above the age of 23, rates have increased by 6.6% to £9.50, while the 22-to-23 age bracket has seen a 9.8% increase to £9.18. Those aged 18 to 20 (inclusive) will experience an increase of 4.1% to £6.83, while 18-year-olds are set to receive £4.81 – an increase of 4.1%. And apprentices under 19 will receive an 11.9% increase to £4.81, while apprentices above the age of 19 see an increase of 11.9% to £4.81, for the first year of their apprenticeship only.

Statutory Payments

From Sunday 3^rd April, the statutory weekly payments have changed. Sick pay will change to £99.35 per week, while maternity pay is 90% of an employee’s average weekly earnings for the first 6 weeks, followed by 33 weeks at £156.66 or, if this is lower, 90% of the average weekly earnings. Paternity pay is £156.66 for 2 weeks or, if this is lower, 90% of the average weekly earnings. Adoption pay is now 90% of employee’s average weekly earnings for the first 6 weeks, followed by 33 weeks at £156.66 or, if this is lower, 90% of the average weekly earnings. Shared parental pay is £156.66 for 2 weeks or, if this is lower, 90% of the average weekly earnings, while parental bereavement pay is now £156.66 or, if this is lower, 90% of the average weekly earnings.

The rate of recovery of statutory maternity, paternity, adoption, shared parental pay and bereavement pay from HMRC remains at 92% if Class 1 NIC’s are greater than £45,000.  If less, then employers may claim 103%.

Student Loan threshold from 6 April 2022

• For plan one, the threshold will be £20,195 per year.
• For plan two, the threshold will remain at £27,295 per year.
• For postgraduate loans, the threshold will remain at £21,000.
• For plan four – the threshold will be £25,375 per year

Employment Allowance

In the spring statement in March 2022, the Chancellor increased this allowance to £5,000. Eligibility rules apply.

Health & Social Care Levy

The introduction of a temporary increase in National Insurance of 1.25% for employees, self-employed and employers has come into force from 6 April 2022, and will affect NI Contributions in the following brackets – Class 1, Class 1A, Class 1B, Class 4

Earnings above the Primary Threshold, £823 for April, May and June and thereafter, £1048, till the end of the 2022/23 tax year will be calculated at 13.25%/3.25% (employees), 10.25%/3.25% (self-employed) and 15.05% (employers). The increased NI Contributions can be offset against the employment allowance in 2022/23 tax year.

HMRC have requested that employers display the following message on employee payslips for the whole of the 2022/23 tax year:

1.25% increase in NICs funds NHS, health and social care.

Any benefits given in the tax year 2021/22 and processed in 2022/23 will not be affected by the increase.  However, this will change in the subsequent tax year. From 2023/24, a new tax levy will be introduced to support UK health and social care bodies and NI Contributions will revert to the 2021/22 rates. Further details will be released in respect of how this will interact with the Employment Allowance. Employees over the state pension age will pay a health and social care levy tax of 1.25% and employers will continue to pay 15.05%.

Statutory redundancy pay

The maximum weekly threshold for England, Scotland and Wales is set at £571. The maximum weekly threshold for Northern Ireland is set at £594.

To discuss any of the matters raised in this blog please contact our MHA UK.