Welcome to the roundup for our latest webinar, which focuses on the latest updates to payroll legislation set to occur over the course of this financial year.
Ask any seasoned payroll professional and they will likely tell you that dealing with the administrative demands of keeping on top of changes to rules and legislation, represents one of the most challenging aspects of their role.
Compliance is king in payroll and failure to keep on top of legislative changes can lead to severe consequences for your organisation, both from a financial and legal standpoint.
Whilst remaining agile to the changes dictated by new rules and regulations is vitally important, when new legislation is introduced in tandem with an already demanding period, expecting your payroll teams to juggle so many responsibilities unsupported can be inviting disaster.
Advanced’s Commercial Director, Julie Lock is joined by Matthew Akrigg, policy and research officer at the CIPP, as they take a deep dive into the upcoming payroll legislation changes for this year and how businesses and their pay teams can ensure they are remaining compliant.
Tax thresholds
In November 2022, Chancellor Jeremy Hunt announced changes to income tax rules in a move which is predicted to see millions of UK citizens paying out more overall.
The Chancellor announced he has frozen the income tax personal allowance at £12,570 until April 2028. This has also coincided with a freeze on tax thresholds which determine the point at which people begin to pay higher rates of income tax.
This means that as wages rise, many workers will find themselves actively worse off as they move into higher tax bands and see an increased portion of their earnings paid out as income tax.
The higher rate of income tax is currently 40%, and is paid on earnings between £50,271 and £150,000 a year. The top of this band is set to fall to £125,140 from April 2023 under new legislation.
National Insurance
National insurance represents the second biggest impact on personal earnings outside of income tax. It is also second only to tax in terms of being a source of income for the government.
On the whole, National insurance operates on bands not dissimilar to income tax thresholds-you do not pay National Insurance on the first £12,571 you earn a year. It is then charged at 12% on earnings up to £50,271, and it is 2% on any money made above that.
Chancellor Hunt has already announced a freeze on National Insurance rates until 2028 in a move which mirrors the threshold freeze for income tax.
Pension cap abolished
One of the more unexpected announcements from the budget came in the form of the Chancellor announcing he was scrapping the lifetime limit on pension savings. This is the maximum amount of pension savings an individual can build up over their career without having to pay an additional charge. The current £1,073,100 limit was due to last until 2026.
Rumours had been circulating prior to the budget that the cap would be raised to £1.8 million but instead, the Treasury has announced that the charge for the limit will be waived from the 6th April 2023 and abolished altogether from April 2024.
Alongside this, the Chancellor has also announced a 50% increase to the Annual tax allowance- rising from £40,000 to £60,000 from the 6th April 2023.
The motivation for both these changes appears to be driven by a motivation to coax older professionals back into work who may previously have retired earlier or reduced their hours due to hitting their earnings limit- though there is doubt that many of the population earn a significant enough amount to be affected by this change.
Statutory payments
Another significant shift for this financial year is to the statutory payments required of organisations:
From 10th April 2023, the weekly rate for Statutory Sick Pay will increase from £99.35 to £109.40. This is a 10.1% increase. SSP represents a significant administrative headache for payroll teams and compliance with the increase will require a reassessment of how absences are currently collated within organisations.
From 10 April 2023, the first six weeks of Statutory Maternity Pay and Statutory Adoption Pay will remain at the same rate- roughly 90% of the employee’s average weekly earnings. The statutory weekly rate for the next 33 weeks shall be the lower of 90% of average weekly earnings or £172.48 (increasing from £156.66).
Real living wage
Set by the Living Wage Foundation, the real living wage applies to all UK workers over 18 years of age. The latest rates were announced in September last year in an accelerated move ahead of the usual November date. This is largely felt to have been precipitated by concerns around cost of living.
All eligible employees should be receiving the new rate as of May 2023. The wage has been calculated by the Living Wage Foundation who set a UK and London living wage rate which factors in a variety of different factors, largely focused around everyday living costs for people.
The current living wage is set at £10.90 for the wider UK and £11.95 for the London rate. The living wage is a voluntary measure currently paid out by 12,000 UK businesses. A key distinction between living wages is they are considered to be a more accurate representation of real world pay than minimum wages which can be seen as setting relatively arbitrary rates.
Minimum wage
As of the 1st April 2023, all employees aged 23 and over will be entitled to the new minimum wage rate of £10.42. This represents a 9.7% increase over the previous year’s rate in a move touted to help ease the burden of rising living costs. By April 2024, this same increase is planned to be extended out to all workers of 21 and over.
The decision to stagger the rollout of the increase has been seen as a way to soften the blow for businesses that rely on a majority of younger staff, such as the hospitality and retail sector. There are concerns that a wholesale rollout would come as too much of a shock, particularly in light of rising business costs.
Statutory cap
The 6th April 2023 will see the annual review of the statutory sick pay cap come into place, with a projected increase from £99.35 to £109.40 per week. The average gross weekly earnings required to qualify for SSP will remain at £123.00 or more.
Other rates changes to family-friendly payments such as Statutory maternity and paternity pay are also set to come into effect:
Statutory maternity pay – 39 weeks at a rate of 90% of gross weekly pay per week, subject to a maximum of £172.48 per week (up from £156.66 per week) after the first 6 weeks.
Statutory Paternity Pay –£172.48 per week (up from £156.66 per week), roughly 90 per cent of average weekly earnings per week
Statutory Parental Bereavement Pay –£172.48 per week (up from £156.66 per week), roughly 90 percent of average weekly earnings per week
Spring budget 2023
The spring budget also presented a number of changes which will require specific attention of pay and leadership teams to ensure compliance:
Childcare reforms for working parents
One of the most significant announcements for the UK workforce comes in the form of what the Chancellor touts as a “revolution in childcare”, with a proposed reduction in childcare costs and increased availability of facilities for those in need.
The plans will see working parents being made eligible for 30 hours of free childcare for every child over the age of nine months from September 2025, with the measures being introduced in two phases: Firstly, 15 hours of free childcare for working parents of two-year-olds available from April 2024, then 15 hours of free childcare for working parents of children aged nine months to three years from September 2024.
Apprenticeships for over 50s
Alongside the abolishing of the lifetime allowance on pensions, the Chancellor has also announced the introduction of Returnerships: apprenticeships aimed at the over 50s. This again, is part of the wider growth plan of coaxing skilled, retired or semi-retired individuals back into the workforce.
The Returnerships will offer skills bootcamps and sector based academies to help refine existing skill sets amongst older employees. These measures will seek to redress the balance of previously lost knowledge and experience amongst certain sectors. Industries such as construction in particular have struggled with an increasingly aging workforce who have been unable to pivot their learned knowledge into something which can be of use to younger employees.
Corporation tax hikes
In a move which found him somewhat defying wider expectations, the Chancellor announced that he intended to see through the previously proposed increase on corporation tax from 19 percent to 25 percent.
The measures will impact organisations with more than £250,000 in profits from April 2023- this equates to roughly 10% of all UK organisations who would be hit by the increase.
Alongside the announcement of the increase, the Chancellor has also introduced a “full expensing” scheme, which will offer organisations the ability to deduct money invested in IT technology from taxable profits.
What’s next?
Hopefully you found this a helpful focused look at some of the major changes announced for pay and wider legislation across the course of this year.
At Advanced, we’re more than aware that budget announcements tend to herald huge legislative shifts- ones which more often than not find themselves impacting people teams and their core responsibilities.
If you’d like to find out in more detail, the nature of these predicted changes and how they may impact you and your pay teams, the full webinar with Matthew and Julie is now available to view for free, on-demand and at your convenience.
We know just how important it is to you that you’re able to hit the ground running with these proposed changes and make sure you get it right the first time. Non-compliance with any one of these new rulings could carry the potential of severe financial or legal penalties- not to mention negatively impacting the wellbeing of your people.
A huge part of getting it right will be ensuring you have the accuracy and visibility of workplace data you need to succeed. Our Advanced Payroll solution has been created by experts in the field of pay and designed to specifically challenge administrative and compliance headaches which can impact pay professionals. Advanced Payroll is based on a real-time calculation model and is fully HMRC compliant, meaning that any legislative changes are accounted for effortlessly and in real-time.
If you’d like to find out more about how Advanced can help you get ready for the changes predicted over the next 12 months, get in touch today.