The United Kingdom (UK) is a global financial hub. The majority of MNCs operating globally have some form of presence in “the land of Cricket, Ale Pie, and Royals.” The UK welcomes new business and makes it relatively easy to start employing locals and set up a UK payroll. The website of the government agency known as Her Majesty’s Revenue and Customs (HMRC), outlines the key aspects to registering as an employer and setting up payroll operations.
First and foremost, the Fiscal Year in the UK runs April 6 to April 5. There are numerous stories and debate as to the reason for the fiscal year, but it is an institution that needs to be adhered to.
Second, Employers need to register for a PAYE Scheme. PAYE stands for Pay As You Earn. This scheme involves deducting income tax (PAYE) and National Insurance (NI) from your employee’s salary and paying it to HMRC. The employer is obligated to contribute into NI (13.8% Class 1) as well. Payroll Tax liabilities need to be paid to the revenue organization by the 22nd of the following month.
Perhaps you have heard the acronym RTI; this refers to the way UK payroll tax filings need to be submitted. In 2012, the HMRC began the phased introduction of Real Time Information (RTI). The implementation was completed by end of 2013. Under RTI, information about tax and other deductions under the PAYE system is transmitted electronically to HMRC by the employer every time an employee is paid and/or as soon as payroll is approved.
Aside from RTI, the UK has had some large developments over the past few years that have a great impact on UK payroll. These include Auto Enrolment and the introduction of the Apprenticeship Levy, explained below.
In order to ensure UK Citizens have healthy savings for retirement, the UK Government introduced Auto Enrolment (AE) in October 2012 and it is still phasing in. It will affect all employers in the UK by 2018. As an Employer, you are required under AE to:
• Provide qualifying pension schemes for your employees. There can be multiple or single schemes as long as they meet the qualifying scheme guidelines outlined by the Pension Regulator. (See below)
• Automatically enroll ‘eligible jobholders’ into the scheme(s) through the Pension Administrator directly.
• Complete the assessment of your current workforce into 3 worker categories. Pension providers will work with you to advise in detail the categories and help place the employees accordingly.
• Tell eligible job holders they have been automatically enrolled and they have the right to opt out.
• Tell other workers they can opt into the pension scheme.
• Register with the Pensions Regulator and provide them details of your qualifying pension scheme and the number of people that you have automatically enrolled.
Since October 2012 many employers have been participating in the program; the majority of employers will have fallen under the new rules as 2017 progresses.
An Employer’s staging date (i.e. the date that the company will need to comply with AE legislation) is dependent on employee headcount. The Pensions Regulator will write to you confirming this date 12 to 18 months beforehand.
Auto Enrolment will require you, the employer, to take steps to ensure that your pension scheme and internal administration are AE compliant.
You will need to supply the following information to your payroll provider at least 1 to 3 months prior to your staging date to ensure your payroll processing compliance:
• Details of your qualifying pension scheme
• How the pension contributions should be calculated
• The default percentage contributions
Upon receipt of above, your payroll provider should be able to implement your chosen pension scheme into their payroll software for processing and deduction in a timely manner. Please note, payroll providers will not set up the pension scheme and produce the various employee correspondences that are legislatively required as this is a company responsibility.
Celergo strongly recommends that you contact your pension provider now to see if your current pension arrangement is compliant, or if not, you need to set up a new, compliant scheme.
In April 2017, the UK government introduced the Apprenticeship Levy (AL) as part of the U.K. government’s plan to increase apprenticeships. It is a new tax intended to fund three million new apprenticeships in England by 2020. The primary aim is for the new levy to help improve both the quantity and quality of apprenticeships. The new levy will come into effect on 6 April 2017.
Any employer, in any sector across the U.K., with a pay bill (total amount of earnings subject to Class 1 secondary NICs) of more than £3 million each year will be affected. For the purposes of the levy, an “employer” is defined as someone who is a secondary contributor, with liability to pay Class 1 secondary National Insurance contributions (NICs) for their employees. Additionally, self-certification is required if a pay bill is under £3 million for a whole tax year. It is important to beware of fluctuating earnings (overtime, bonuses) as they may trigger AL eligibility.
Employers will pay the levy on their entire pay bill at a rate of 0.5%. However, a levy allowance of £15,000 (for each tax year) can be offset against it. This means the levy is only payable on pay bills of more than £3 million a year (0.5% x £3 million = £15,000). The levy allowance will operate on a cumulative basis, meaning a monthly allowance of £1,250 can be carried forward, and any unused allowance may be offset against other pay-as-you-earn (PAYE) liabilities. Part-year companies will still receive the full allowance.
Admittedly, this can get complicated! So, here are a few examples of how the AL works:
Example I: An employer with an annual pay bill of £5,000,000:
• Levy sum: 0.5% x £5,000,000 = £25,000
• Subtracting levy allowance: £25,000 – £15,000 = £10,000 annual levy payment
Where a group of employers are connected, they will only be able to use one £15,000 levy allowance. The levy is also allowable as a deduction for corporation tax.
Example II: An employer that would not have to pay the levy:
• An employer with an annual pay bill of £2,000,000:
• Levy sum: 0.5% x £2,000,000 = £10,000
Subtracting levy allowance: £10,000 – £15,000 = £0 annual levy payment
Employers (via their payroll provider) will calculate, report, and pay any levy due to HM Revenue and Customs (HMRC) on a monthly basis through the normal PAYE process alongside tax and NICs (then paid by 19th/22nd of the following month). The first submission in which employers had to declare they will pay the levy was May 2017. Currently, payroll software is being updated throughout the U.K. to account for this new levy. Your payroll provider should advise you of further details on how this will be reflected on your payroll register.
From January 2017, companies can register to create a digital bank account to hold all AL funds paid over and top-up funding. Funds will be credited to that account after each remittance (22nd monthly) and can only be used to pay for apprenticeship training and assessments and not for salary or wages. Employers will be able to pay for apprenticeship training and assessments via this service. The funds can be used for in-house, college, or outsourced training.
DAS—Digital Apprenticeship Service—is currently under development and will be rolled out first to companies in England (separate arrangements will be put in place in Scotland, Wales, and Northern Ireland) that pay the AL. DAS is planned to be available to all companies in England over the next year.
Companies can use the DAS account for:
• Selecting an apprenticeship framework or standard
• Choosing the training provider or providers they want to deliver the training
• Choosing an assessment organization
• Posting apprenticeship vacancies
The government will apply a 10% top-up to the funds employers have for spending on apprenticeship training in England. This means for every £1 that enters an employer’s digital account to spend in England on apprenticeship training, an employer will actually get £1.10.
Q. How Long Are Funds Available to Employers?
A. Funds will expire 18 months after they enter an employer’s digital account unless an employer spends them on apprenticeship training. The digital account will let an employer know when funds are due to expire so it can arrange to spend them if it wishes.
Q. What About Employers Not Paying the Levy?
A. If an employer is not liable to pay the levy, it will still get a government contribution to the training and assessment of its apprentices. It can also use the digital apprenticeship system to find a provider that offers the training required for its apprentices.
Q. What about Apprentices in Place before April 2017?
A. Apprentices who have been accepted to an apprenticeship program prior to 6 April 2017 will be funded for the duration of their apprenticeship under the same terms and conditions in place when it commenced.
You can contact the National Apprenticeship Service for more Information on levy queries and recruiting apprenticeships.
Over the past few years, we have seen the UK Government introduce some significant changes affecting payroll, as outlined above. It is important to stay up-to-date and in-the-know to ensure that your payroll operations remain compliant. Although running UK payroll is less complicated than some other countries such as France and Brazil, the developments have added an extra layer of due diligence. Here at Celergo, we are dedicated to keeping our clients compliant and we offer a compliance guarantee to back it up. Contact us if you have any questions!