By the time you read this article, the United Kingdom (U.K.) will be in its mid-tax year (tax year started 6 April), which is a strange time for the U.K. It appears that everyone is on holiday, certainly at the U.K. Parliament, as members of parliament retire for the summer back to their constituencies.
Payroll professionals are heaving a huge sigh of relief as they conclude the submission of their Expenses and Benefits forms (P11Ds) and accounting for the annual payment of employer Class 1A National Insurance Contributions. They may even be taking some annual leave themselves (pay runs allowing, of course).
Software developers (SD), however, are geared up to receive news, information, and detailed guidance of any new policies that will be introduced in April 2019. The plea to government departments when new legislation or changes to existing policies and processes are proposed is that a lead-in time of 18 months (minimum) be provided. This remains a constant call from SD.
Routine information and guidance begins to arrive from the HMRC Software Developer Support Team (SDST) in the summer to provide the essential technical specifications and schema for all manner of essential processes that all payroll software now needs to contain.
This article explores two policy developments that SD are currently dealing with—Welsh income tax rates and the payslip.
Welsh Rates of Income Tax
Over the last few years, we have worked through the delivery of devolved responsibility of income tax to Scotland, and now we turn our attention to another U.K. nation—Wales.
It has been almost 800 years since the Welsh nation last had the authority to set its own tax rates. In April 2018, that changed as the Welsh Assembly became responsible for land transaction tax and landfill disposals tax which, for Wales, replaced stamp duty land tax and landfill tax.
From April 2019, the National Assembly for Wales will be able to vary the rates of income tax payable by Welsh taxpayers. The responsibility for many aspects of income tax will remain with the U.K. government, and income tax will continue to be collected by HMRC for Welsh taxpayers.
The U.K. government will reduce each of the three rates of income tax—basic, higher, and additional rates—to be paid by Welsh taxpayers by 10 pence in the pound. The National Assembly for Wales will then decide what the three Welsh rates of income tax will be, and they will be added to the reduced U.K. rates. The combination of reduced U.K. rates plus the Welsh rates will determine the overall rate of income tax paid by Welsh taxpayers.
As an example, if the National Assembly set each of the Welsh rates of income tax at 10p, this will mean the rates of income tax paid by Welsh taxpayers will remain the same as that paid by English and Northern Irish taxpayers.
Employees who are affected by the change and thus are liable to pay the Welsh rate of income tax will be identified by the addition of a C (Cymru) prefix that will be applied to their tax code when Welsh Income tax becomes devolved in April 2019.
As the responsibility for many aspects of income tax will remain with the U.K. government, and the Welsh rates of income tax will continue to be collected by HMRC, the HMRC SDST will continue to issue updates and technical guidance to payroll software developers. An indicative timetable was issued in the spring to alert SD as to when they can expect to receive further technical updates and information.
Details of the proposed rates will be announced in the Welsh Government Budget later this year.
The income tax regimes that will be impacted by this change include PAYE (basic, higher, and additional rates), income from pensions, and other non-savings sources and self-assessment.
However, not all powers relating to the administration and collection of income tax have been devolved to Welsh Government by the Wales Act 2014. Excluded from these measures are:
- The ability to vary the tax-free allowance or to vary the threshold of the existing tax bands
- The ability to introduce further tax bands
- The ability for individuals to self-declare their residency status via a change to the starter checklist
Employer guidance relating to the operation of payroll can be expected by January 2019 following the ratification of Welsh rates. As we have seen in recent years with the Scottish rate of income tax, the budget is only the first step in the setting of tax rates. An agreement will be needed by the Welsh Assembly to enable HMRC to confirm the rates to be used starting in April 2019.
The message for employees remains constant. It is vital for them to keep HMRC informed when they have a change of address, for a number of reasons but not least to identify when they are a Welsh resident. HMRC continues to promote use of the Personal Tax Account as the preferred method to update details; however, address details can still be changed via the telephone helpline service.
The Importance of the Payslip
The Low Pay Commission (LPC) has previously recommended that the government should consider introducing a requirement that payslips of hourly paid staff should clearly show the hours being paid when the worker is paid by reference to time worked.
The recommendation was accepted by the U.K. Department for Business, Energy and Industrial Strategy (BEIS). Earlier this year and following a period of informal consultation in 2017, the Employment Rights Act 1996 (Itemised Pay Statement) (Amendment) (No. 2) Order 2018 (ERA) was laid, which will impact employers and their agents beginning 6 April 2019.
The order amends Section 8 of the ERA to add to the requirements of an itemised pay statement that it also contain information regarding the number of hours worked by the employee for which they are being paid, but only in situations where the employee’s pay varies as a consequence of the time worked.
In addition to this, and picking up on recommendations and themes arising from the Matthew Taylor Review in 2017, the ERA amendment provides for an additional change that extends the right to receive an itemised pay statement, together with the “associated enforcement provisions,” to all workers and not just employees who work under a contract of employment.
As the recent consultation on employment status highlighted, the challenges for employers and payroll professionals remain great in ensuring that all workers are correctly identified. So often, our focus falls on the tax status of an individual and not the employment status for ensuring that a worker is granted their employment rights, which starting in April 2019 will also include the right to receive an itemised pay statement.
This is a challenge that our SD are fully aware of.
As ever, I end with a note that acknowledges that there are still so many other U.K. topics that could have been mentioned, all of which our SD will be working on solutions for over the summer, autumn, and winter months—subject to the provision of timely information by the government, of course.
Our exit from the European Union (EU) continues to dominate the political landscape, but “business as usual” goes on, and so does our work and our planning.
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Samantha Mann, MAAT, MCIPPdip, is a Senior Policy and Research Officer for the Chartered Institute of Payroll Professionals (CIPP) who has more than 30 years of experience working within payroll in the small and medium enterprise (SME) sector. Mann uses her wealth of knowledge to provide technical support to the advisory service, write technical articles, and write and deliver presentations.