Getting ready for the new tax year

With the start of the new tax year fast approaching, now is the time make those last minute preparations.

Tax code uplifts

For tax year 2021-22 the basic Personal Allowance will be £12,570 for the whole of the UK, making the threshold for PAYE £242 per week (£1,048 per month). The emergency code is 1257L for all employees. 

The HMRC bulk issue of P9 coding notices to employers has now been completed. You should be able to view online forms now.  Make sure that you check your online account, ensuring that the correct tax year is selected from the dropdown, 2021 – 2022. If the P9 notices are still not showing, sign out and sign back into the account the following day. You should then be able to view the P9s online.

Paper form P9s should be arriving with employers on or around 19^th March.

The tax code uplift for employees with a suffix of L, M or N is:

• Add 7 to any tax code ending in L, for example, 1250L becomes 1257L
• Add 8 to any tax code ending in M
• Add 6 to any tax code ending in N

You can download a copy of the P9X, along with the rates limits and thresholds which apply from 6 April 2021 from the MBKB website.

National Minimum Wage

New National Minimum Wage rates should be applied to pay periods commencing on or after 1 April 2021. In a major change, the qualifying age for National Living Wage has been lowered to 23 years and over.  You should check that your software has identified those individuals to whom the National Living Wage will now apply.

Student Loans

A new type of Student Loan, a Plan 4 loan comes into effect in 2021-22. Scottish borrowers, who drew down their loan from the Student Award Agency for Scotland (SAAS) are currently repaying their loans under the Plan 1 threshold. Eligible borrowers will switch to Plan 4 from 6 April 2021.  The Plan 4 threshold will be £25,000 and deductions will be calculated at 9% on earnings above the Plan 4 threshold.

The introduction of Scottish Student Loans has resulted in SL1s being issued to employers for existing borrowers impacted by the change, in addition to the usual bulk issue of SL1s at the start of each tax year.

Employers should have begun to receive both paper and electronic notices from 5 March 2021.You should apply this change to your payroll software and action on your first FPS submission after 6 April 2021. If your employee is not moved to Plan 4, they will over repay their Student Loan. No action is required for Plan 1 borrowers who did not draw down their loan from SAAS.

Off-payroll working

From 6 April 2021 all public sector employers, and medium and large employers in the private sector will be responsible for assessing the status of contractors providing services through a personal services company (PSC) and determining whether the contractor is employed or self-employed for tax purposes.  It must take reasonable care in making that assessment and confirm its assessment together with reasons in a Status Determination Statement (SDS).  

If the end-user determines that IR35 applies, the responsibility for operating PAYE and NICs will move from the PSC to the “fee payer”  (the entity contracting directly with the PSC). The reforms apply to any payments made on or after 6 April 2021, unless all the contractor’s labour was provided before that date.

Employers need to ensure they have processes in place for making status determinations, not just of new contractors, but of any contractor who will be providing their services after 6 April.  And payroll departments must ensure they know how to process the invoices of contractors, and that their software has the functionality to identify and process invoice elements subject to tax and NICs as well as the invoice elements which are not subject to PAYE and NICs such as:

• Allowable expenses
• Materials
• VAT

Not forgetting of course that these payments are included when calculating eligibility to pay the Apprenticeship Levy, but are not included when calculating entitlement to the Employment Allowance, nor should Student Loan deductions be taken, so make sure you use the off-payroll flag on the FPS.

The MBKB webinar on off-payroll working is available on the MBKB website.