Q: As a small company with 15 employees I would like to understand the changes coming in the new tax year regarding payroll taxes and the national minimum wage?
The new tax year 2023/24 has just arrived and there are some legislative changes which affect payroll and the amount of pay that your employees will receive.
There are some areas that see little or no change, and some changes that are more significant:
- The personal allowance remains at £12,570.
- The threshold for the additional rate of income tax is lowered to £125,140.
- In Scotland, the higher rates of taxation increase by 1% but there is no change in Northern Ireland.
- National Insurance rates and thresholds stay at the amounts in place since November 2022. Note for the 2022-23 year, due to the changes in rates that took place in July and November, directors will see a blended rate of national insurance applied when the annual recalculation is performed. The rates are 14.53% employer and 12.73% & 2.73% employee.
- Also unchanged is the Employment Allowance, remaining at £5,000 per annum, and the Apprenticeship Levy rate, allowance and pay bill threshold remain unchanged too.
- There is a small increase across the main Statutory Payments in 2023/24.
- Student Loan Plan 1 & Plan 4 thresholds see a small increase, the rate of deduction remains unchanged
- The National Living Wage (NLW) and National Minimum Wage (NMW) increases are significant this year and they apply from 1st April. The adult rate increases to £10.42 per hour, with the rate for 21-22 year olds increasing to £10.18.
The difference between National Minimum Wage (NMW) and National Living Wage (NLW)
The National Minimum Wage is an hourly rate set by the Department for Business, Energy & Industrial Strategy (BEIS) and enforced by HM Revenue & Customs (HMRC). There are different rates depending on your age and if you are an apprentice. The NMW means that you should receive at least an amount of pay per hour for the hours worked in your pay period, for example, a week or a month.
The National Living Wage (NLW) was introduced from 1 April 2016 and is essentially a premium on top of the NMW. Originally it was for workers aged 25 and over who were not in the first year of their apprenticeship. From 1 April 2021, it is for workers aged 23 and over, who are not in the first year of an apprenticeship. While the NLW operates as a higher level of NMW, the same rules apply to both.
HMRC are looking closer and closer at workers who may be paid less than the minimum wage. It is against the law for employers to pay workers less than the National Minimum Wage or to falsify payment records. A worker can make a complaint to HMRC who will investigate the complaint. If HMRC find that an employer hasn’t paid at least the National Minimum Wage, they can send a notice of arrears plus a penalty for not paying the correct rate of pay to the worker.
Since the introduction of the National Living Wage the penalty for non-payment will be 200% of the amount owed, unless the arrears are paid within 14 days. The maximum fine for non-payment will be £20,000 per worker. However, employers who fail to pay will be banned from being a company director for up to 15 years.
Calculating employee rates correctly
It is important to ensure you calculate the right rates to pay your workers and you need to know that the government includes time spent:
- at work and required to be working
- not working because of a machine breakdown, but kept at the workplace
- waiting to collect goods, meet someone for work or start a job
- travelling in connection with work
- training or travelling to training
- at work and under certain work-related responsibilities
WHAT’S NOT INCLUDED:
- travelling between home and work
- away from work on rest breaks, holidays, sick leave or maternity leave
- on industrial action
- not working but at the workplace or available for work.
We have seen an uptake in HMRC enquiries into Payroll taxes in recent months and we would recommend that all businesses take the time to review their payroll procedures and ensure all employees pay is calculated correctly and in line with government rates.
Get in touch
If you have any further queries regarding latest legislative changes affecting payroll, contact FPM Tax Partner Malachy McLernon.