Challenges facing payroll professionals

It is vital to remain up to date and vigilant of change when it comes to payroll. Samantha Mann, CIPP senior policy and resource officer, shares the latest information.

The first Welsh taxes for almost 800 years came into being from April 2018 and included land transaction tax and landfill disposals tax which replaced stamp duty land tax. Landfill tax Income tax will become devolved from April 2019.

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 UK government, and the tax will continue to be collected by HMRC for Welsh taxpayers.

From April 2019, the UK government will reduce each of the three rates of income tax – basic, higher and additional rate – paid by Welsh taxpayers by 10p. The National Assembly for Wales will then decide the three Welsh rates of income tax, which will be added to the reduced UK rates. The combination of reduced UK rates plus the Welsh rates will determine the overall rate of income tax paid by Welsh taxpayers.

If the National Assembly sets 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.

An information sheet was published earlier this year that looked to address many of the FAQs arising from this change.

Employers will be able to identify affected employees due to the addition of a C (Cymru) prefix that will be applied to the tax code when Welsh Income Tax becomes devolved from April 2019.

As the responsibility for many aspects of income tax will remain with the UK government, and the Welsh Rates of Income Tax will continue to be collected by HMRC, the HMRC Software Developers Support Team (SDST) has recently circulated to Payroll Software Developers an update that confirms what changes are to take place and an indicative timetable of when they can expect further technical updates and information.

Details of the proposed rates will be announced in the Welsh Government Budget later this year.

What will be impacted?

Income taxes 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 and so 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 nor the ability for an individual to self-declare their residency status via a change to the starter checklist.

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 and agreement will be needed by the Welsh Assembly to enable HMRC to confirm the rates to be used from April 2019.

The message for employees remains constant in that it is vital for them to keep HMRC informed where they have a change of address, for a number of reasons but not least to identify where they are a Welsh resident. HMRC continue 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.

Student loans

From April 2018 payroll software has been required to report the plan type in operation e.g. Plan 1 or Plan 2 when submitting the FPS. In addition, where HMRC issue an employer prompt, which will happen where an anticipated student loan deduction has not been made by the employer, we will see the plan type also confirmed on the employer prompt. The prompt however is not authorisation to begin to make deductions.

A starter checklist aids an employer in making an assessment as to whether their new employee should be subject to student loan deductions and if so which type. However, authorisation from HMRC to begin making a student loan deduction is issued by way of a form SL1 and HMRC have confirmed recently that for all new employments (where deductions are applicable) an SL1 will be sent to the employer even if they have already sent in a Full Payment Submission showing they have already begun taking deductions.

If you receive an SL1 for an employee who is already having deductions taken, then HMRC recommend that you check the student loan plan type to ensure there has been no changes; update your payroll software, if you need to change the plan type; and file the SL1 away.

Looking ahead to April 2019 we can expect to see further additions to the Student Loan regime – but more about that in a future article.

The importance of the payslip

In their spring report of 2016 the Low Pay Commission (LPC) recommended the Government should consider introducing a requirement that payslips of hourly paid staff should clearly state the hours they are being paid where the worker is paid by reference to time worked.
 
The recommendation was accepted by BEIS (The Department for Business Energy & Industrial Strategy) and earlier this year The Employment Rights Act 1996 (Itemised Pay Statement) (Amendment) Order 2018 (ERA) was laid which will impact employers and their agents as from 6 April 2019.
 
The order amends section 8 of the ERA to add to the particulars required within an itemised pay statement to 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 The Employment Rights Act 1996 (Itemised Pay Statement) (Amendment) (No.2) Order 2018 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.

In short, all employees are workers but not all workers are employees and as the recent consultation on Employment Status highlighted, the challenges remain great as they relate to ensuring that all workers are correctly identified. So often focus falls on the tax status of an individual and not the employment status for the purpose of ensuring that a worker is granted their employment rights, which from April 2019 will also include the right to receive an itemised pay statement.

During 2017 and as part of the informal consultation that BEIS carried out in advance of laying the amendment orders, the CIPP ran several surveys that identified that a majority of respondents already provided this information on their payslips, however a significant number did not, nor were they sure whether their software would enable them to do this.
 
The somewhat minimalistic wording in the order will need to be bolstered by good, clear, unambiguous guidance and we remain committed to working with BEIS to ensure its timely and accurate production ahead of April 2019, to enable software developers and employers, through their payroll professionals, to be ready to comply with this tight timescale.
 
At the time of writing no detailed guidance has yet been published by BEIS however a range of questions are being submitted to BEIS to ensure that the guidance they provide is robust and fit for purpose. 

Conclusion

There is never a shortage of subjects vying for position when it comes to drafting an article that aims to provide a payroll update – which demonstrates again – if such a demonstration is needed, how vital it is to remain up to date and vigilant of change on the horizon. The CIPP policy team provide a daily news feed to highlight current news and changes afoot which can be viewed at www.cipp.org.uk/news-publications.html.