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Payroll Changes Coming in the U.K. Tax Year

By Samantha Mann, MAAT, MCIPPDip


In the world of pay and reward there are two years—the calendar year and the tax year. The calendar year begins 1 January and runs through 31 December. The calendar year quite often forms the contractual basis of the annual leave year. Then there is the U.K. tax year which runs from 6 April to 5 April of the following year. For the employee, the annual leave year is important, but for the payroll professional the tax year is vital, as it is from 6 April that so many things will change.

As we head toward 6 April 2018, it seems timely to cast a spotlight on a small number of changes facing global payroll professionals who deal with U.K. payrolls this year.

Paying HMRC Online

The EU Payment Services Directive 2 prohibits bodies from recharging associated fees back to customers. Her Majesty’s Revenue and Customs (HMRC) can only accept card payments as long as there is no cost to the public purse, so from 13 January 2018, HMRC no longer accepts payments made by a personal credit card. This applies to any online payments to HMRC and spans the entire range of business taxes such as Self-Assessment, Employers’ PAYE, and National Insurance and Corporation Tax.

Corporate, business, and commercial credit cards are not affected by this change, and HMRC will continue to accept personal and commercial debit cards.

Tax-Free Childcare

The removal of the option to pay by personal credit card also affected working parents who are using the latest service from HMRC—Tax-Free Childcare (TFC). The title is a tad misleading as it has nothing to do with tax. The underlying legislation is the Childcare Payments Act 2014, which introduced a new online childcare scheme to support eligible parents with childcare costs by way of a 20% top-up to a maximum of £2,000 each tax year or £4,000 for a child with a disability.

During 2017, the service was rolled out gradually and as of 14 February, all working parents with children under age 12, or under age 17 if disabled, were able to apply for TFC along with other support also available (free hours in a nursery or with other early education providers for 3- and 4-year-olds). While TFC is U.K.-wide, the details of the additional free places schemes will vary depending upon in which U.K. nation the working parent resides (i.e., England, Scotland, Wales, and Northern Ireland).

As a result of the new TFC scheme, as of 6 April, no one can join the old Employer Supported Childcare (ESC) scheme (or Child Care Voucher (CCV) scheme). The older ESC provided a salary sacrifice scheme where parents swap part of their salary to contribute toward their childcare contribution and were provided tax relief on payments up to £55 per week (depending upon earnings levels) and a matching National Insurance Contribution (NIC).

Working parents already in receipt of CCVs through these schemes can continue with their employer-provided schemes until they no longer need the vouchers or they elect to move to TFC.

A calculator on GOV.UK will help working parents decide which scheme will be most beneficial to them.

It’s fair to say that this new service has experienced a few problems along the way and has been the subject of much scrutiny by both the media and by Parliament.

Student Loans

The Department for Education confirmed in October 2017 that there would be a threshold change for student loan borrowers in the current Income Contingent Repayment (ICR) scheme. So, from 6 April:

  • Plan 1 loans threshold will rise to £18,330
  • Plan 2 loans threshold will rise to £25,000

A repayment threshold for Plan 2 loans of £21,000 was to be fixed until 2021 (following a consultation held in 2015). However, the Government have decided, and the cynical amongst us have suggested, that perhaps this decision has been made in a bid to attract student voters to reverse their decision.

The new Plan 2 threshold will apply to those who already have taken out and will take out loans for tuition and living costs for full-time and part-time undergraduate courses in the post-2012 system and those who took out or will take an advanced learner loan for a further education course.

On 6 April, the upper threshold will rise to £45,000 from £41,000. Both the repayment and variable interest thresholds will be adjusted annually in line with average earnings thereafter.

Scottish Income Tax Rates, Thresholds

You may recall that last year the proposals put forward in the Scottish draft budget for 2017/18 were later changed when put to the vote in the Scottish Parliament, and at the time of writing they are still in draft form. It has to be said that (at the time of writing) the entire payroll profession—especially payroll software developers—have their fingers crossed that there will be no further changes. No one likes to have to repeat work because of political dissension.

For the first time we will see a different number of rates and thresholds than those used in the rest of the U.K.

The proposal includes a new 19% Starter Rate of tax, a proposal to freeze the basic rate at 20%, introduce a new Intermediate Rate of 21%, and add a 1% increase to both the Higher Rate and Top Rate, respectively.

Chart 1—Proposed New Scottish Tax Rates

Gross Income (£)

Income Tax Rate

£11,850* - £13,850


£13,851 – £24,000


£24,001 – £44,273


£44,274 – £150,000**


Above £150,000**



* Assumes individuals are in receipt of the standard U.K. personal allowance.

** Those earning more than £100,000 will see their personal allowance reduced by £1 for every £2 earned over £100,000.

Automatic Enrolment Changes

On 6 April, all employers will be required to increase the minimum contribution from the current level of 2% of qualifying earnings to 5%. Employers will need to increase their contributions to at least 2%, and their staff’s contribution will be increased so that their contributions make up the shortfall needed to bring the total minimum contribution up to 5%.

On 6 April 2019, the contribution levels further increase, where the employer will be required to pay a minimum of 3% with the total minimum contributions needing to reach 8%. The employee must then make up the difference, which could be up to 5%.

Gender Pay Gap

The dates are fast approaching when employers in the voluntary, private, and public sectors that employ 250 or more relevant employees on the snapshot date will be required to publish their gender pay gap figures.

The snapshot date was 5 April 2017 for the private/voluntary sector and 31 March 2017 for public sector employers.

Employers then had a year in which to publish their results on their U.K. websites and upload them to the Government Gender Pay Service portal, which makes the results publically available to all.

It has been estimated that approximately 9,000 employers will need to upload their results by the deadlines—31 March and 5 April. As of 19 January, 624 employers had uploaded their results. Clearly there are a few thousand employers working to meet the deadlines.

In the meantime and looking ahead to the enforcement regime for the gender pay gap regulations—during the first year a light touch approach has been taken—a consultation paper was published by the Equality and Human Rights Commission. Given the media coverage so far about the figures published to date, this is certainly a subject to return to in another article.

And so …

I have barely touched on the changes that are due, but my words, I hope, provide a flavour of the vast range of subjects covered by global payroll professionals working with U.K. payroll. No one can ever say that life is boring or dull in our line of work.

There are a number of consultations ongoing or planned for the coming months—but more about those next time.

Happy New Tax Year in the U.K.

SamanthaMannChartered Institute of Payroll Professionals, Samantha Mann, MAAT, MCIPPdip, is a Senior Policy & Research Officer for the Chartered Institute of Payroll Professionals (CIPP) who has more than 30 years of experience working within payroll in the SME sector. Sam uses her wealth of knowledge to provide technical support to the Advisory service, writing technical articles, and writing and delivering presentations.