PAYE – Debonair Management Services Limited

NIC Changes

March 29, 2022 Debonair Management Services Limted

Employers’ class 1 NIC

The secondary class 1 NIC rates and thresholds (paid by employers) were not altered in the Spring Statement, and the rate is increasing from 13.8% to 15.05% on 6 April 2022.

For 2022/23 the various secondary class 1 NIC thresholds are:

Secondary class 1 NIC	Thresholds
For most employees the employer pays at 15.05% on wages:
Per week:	£175
Per month:	£758
Per year:	£9,100
If the employee is an apprentice or aged under 21 employer pays class 1 NIC at 15.05% on wages above:
Per week:	£967
Per month:	£4,189
Per year:	£50,270
For new employees working at least 60% of their time in a Freeport site the employer can claim relief from class 1 NIC on wages up to:
Per week:	£481
Per month:	£2,083
Per year:	£25,000

Employees’ class 1 NIC

The rates of primary class 1 NIC paid by employees are increasing on 6 April 2022 from 12% to 13.25% and from 2% to 3.25% for the upper rate.

The lower earnings limit (LEL) has not been changed from the proposed level for 2022/23, which will be: £123 per week, £533 per month, £6,396 per year. On earnings between the LEL and the primary threshold, the employee pays class NIC at 0%, thus receives NIC credit for those wages.

The upper earnings limit (UEL) has also not been changed by the Spring Statement, and will stay at the proposed thresholds for 2022/23 of £967 per week, £4,189 per month, £50,270 per year. On earnings above the UEL, the employee will pay class 1 NIC at 3.35% for 2022/23.

The complication introduced by the Spring Statement is that the primary threshold (PT) for class 1 NIC will change part way through the tax year on 6 July 2022. The employee will pay class 1 NIC at 13.25% on earnings between the LEL and the PT for 2022/23.

Class 1 NIC primary thresholds	6 April to 5 July 2022	6 July 2022 to 5 April 2023
Per week	£190	£242
Per month	£823	£1048
Per year	£9,880	£12,570

As NIC is paid according to the pay period, and is not cumulative, only nine months of earnings (from July 2022 to March 2023) will benefit from the higher PT.

Company directors tend to use an annual or quarterly earnings period. Those on quarterly pay will use the lower threshold for the first quarter to 5 July 2022, and the higher PT for the remainder of the year. Those on annual earnings period will use a PT of £11,908 for 2022/23 as specified in clause 4(2) of the National Insurance Contributions (Increase of Thresholds) Bill 2022.

Self-employed class 4

The lower profits limit (LPL), from which class 4 NIC becomes payable, is also increased to align with the personal allowance of £12,570, but over two years. The upper profits limit is frozen at £50,270.

Tax Year	Main rate	Additional rate	LPL	Upper profits limit
2022/23	10.25%	3.25%	£11,908	£50,270
2023/24	10.25%*	3.25%*	£12,570	£50,270

* Including Health and Social Care levy

For 2022/23 the LPL will be £11,908, that is nine months of the increased level, to make it equivalent to the same NIC allowance enjoyed by employees. Although the self-employed individual will pay class 4 NIC at the main rate of 10.25%, which is three percentage points lower than the class 1 NIC paid on the same income band by an employee.

Self-employed class 2 NIC

The class 2 NIC paid by the self-employed creates a contribution record for the individual, unlike the class 4 NIC, which is a pure tax.

The class 2 small profits threshold (SPT) will remain in place from April 2022, but the individual will not be liable to pay class 2 NIC until their profits exceed the lower profits threshold for the tax year, which is aligned with the lower profits threshold for class 4 NIC.

Tax year	Flat rate per week	Small profits threshold	Lower profits limit
2022/23	£3.15	£6,725	£11,908
2023/24	TBA	TBA	£12,570

New class 2 NI credit

Where the individual has annual profits between the SPT and the LPL, they will effectively build up a NI credit for that year, while paying zero class 2 NIC. Note that the taxpayer has to make profits at least equal to the SPT for the year in order to benefit from this class 2 NI credit.

In order to receive the class 2 NI credit the taxpayer will have to submit a tax return, although if they have no other income in the year they will have no tax to pay.

The introduction of the class 2 NI credit does not eliminate the need for voluntary class 2 NIC payments. Where the trading profits are less than the SPT the individual may still wish to pay voluntary class 2 NIC in order to maintain their contribution record and qualify for the state pension, as well as for other contributory benefits.

DMS Posts

Changes to the CJRS from July

June 16, 2021 Debonair Management Services Limted

In July, the UK Government will pay 70% of employees’ usual wages for the hours not worked, up to a cap of £2,187.50. In August and September, this will reduce to 60% of employees’ usual wages up to a cap of £1,875.

You will need to pay the 10% difference in July, and 20% in August and September, so that you continue to pay your furloughed employees at least 80% of their usual wages for the hours they do not work during this time, up to a cap of £2,500 per month.

You can still choose to top up your employees’ wages above the 80% level or cap for each month if you wish, at your own expense.

To help you plan ahead for future claim periods, the CJRS calculator is available to help you work out how much you can claim for employees up to the end of September. To find this and everything you need to know about the CJRS, search ‘Job Retention Scheme’ on GOV‌‌.UK.

DMS Posts, PAYE, Tax

Tax and National Insurance rates and bands

April 5, 2021 Debonair Management Services Limted

Here are the changes that will come into effect in April 2021:

National Minimum Wage and National Living Wage

Changes will come into effect on 1st April. Note the different age bands for rates in 2021/22.

	2021/22	2020/21
Employees aged under 18: NMW	£4.62	£4.55
Employees aged 18-20: NMW	£6.56	£6.45
Employees aged 23 and over: NLW	£8.91	N/A
Employees aged 25 and over: NLW	N/A	£8.72
Employees aged 21-24: NMW	N/A	£8.20
Employees aged 21-22: NMW	£8.36	N/A

England, Northern Ireland and Wales

Changes will come into effect on 6th April 2021.

	2021/22	2020/21
Personal allowance	£12,570	£12,500
Employee’s NI becomes due at	£9,568	£9,500
Employer’s NI becomes due at	£8,840	£8,788
Higher rate tax becomes due at	£50,270	£50,000
Class 2 NI becomes due when profits exceed	£6,515	£6,475
Class 2 NI per week	£3.05	£3.05
Class 4 NI becomes due when profits exceed	£9,568	£9,500

Scottish tax rates and bands

Changes will come into effect on 6th April 2021.

	2021/22	2020/21
Personal allowance	£0 – £12,570	£0 – £12,500
Starter rate 19%	£12,571 – £14,667	£12,501 – £14,585
Basic rate 20%	£14,668 – £25,296	£14,586 – £25,158
Intermediate rate 21%	£25,297 – £43,662	£25,159 – £43,430
Higher rate 41%	£43,663 – £150,000	£43,431 – £150,000
Top rate 46%	Over £150,000	Over £150,000

Student Loan repayment thresholds and new Scottish student loan plan

Changes will come into effect on 6th April 2021.

	2021/22	2020/21
Undergraduate loan: plan 1	£19,895	£19,390
Undergraduate loan: plan 2	£27,295	£26,575
Scottish student loan: plan 4	£25,000	N/A
Postgraduate loan	£21,000	£21,000

DMS Posts, PAYE

What is CEST?

April 5, 2021April 5, 2021 Debonair Management Services Limted

Definition of CEST

CEST is short for Check Employment Status for Tax. It’s a digital tool designed by HMRC to help public authorities decide if a worker falls inside or outside the scope of IR35.

The tool comes in a quiz-like format and can be accessed here.

Why was CEST introduced?

When off-payroll working rules were introduced to the public sector in 2017, the onus to certify whether a worker fell inside or outside IR35 shifted from the worker to the public sector authority.

HMRC produced the CEST tool to help public sector authorities make these decisions quickly and cheaply.

An updated version of the CEST tool was released in November 2019.

Does CEST only apply to the public sector?

CEST can be used in both the private sector and the public sector but it’s important to note that the private sector is assessed differently under the off-payroll regulations. In the private sector, the onus is on contractors to declare whether they fall inside or outside IR35, rather than their clients.

From April 2021, the rules on off-payroll working in the private sector are set to change, bringing it in line with the rules that apply to the public sector for contractors working with large and medium-sized business clients.

DMS Posts, PAYE, Tax

Coronavirus Job Retention Scheme – What do we know so far?

March 24, 2020 Debonair Management Services Limted

The Government announced an extensive package of support on Friday 20 March for employers coping with the commercial difficulties arising from Covid-19. This has been welcomed by employers, many of whom we have been speaking to, who have been extremely concerned about how to pay wages when revenues have dried up or they have been forced to close. Those businesses have been facing very tough choices around lay off, short term working and redundancies – while trying to balance the finances, needs of the business and the livelihoods of their staff and communities.

The key measure announced to help employers is the Coronavirus Job Retention Scheme. Through this, employers can claim a grant to cover up to 80% of an employee’s wage costs. At the time of writing (19:00 on 22 March), we are awaiting detailed guidance as to exactly how this will work: but what do we know about the scheme so far?

Which employers are eligible for the scheme?

All UK employers can apply – you don’t need to be in any specific sectors, just pay people via PAYE. This includes businesses of any size and includes charitable or non profit.

How do you access the scheme?

According to guidance on the Gov.uk webpage, employers will need to:

designate affected employees as ‘furloughed workers,’ and notify their employees of this change – changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.
submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. HMRC will set out further details on the information required.

It is unclear at this time what (if any) financial information an employer would need to provide to HMRC to show that you cannot cover staff costs due to Covid-19.

The employer will be able to claim a grant of up to 80% of the employees wage for all employment costs, up to a cap of £2,500 per month.

The scheme will be backdated to 1 March (useful for employers who have already had to make lay offs) and will be open for at least 3 months, but extended ‘for longer if necessary’.

As this is a reimbursement grant, the employer will make the wage payment to the furloughed employee and then be reimbursed by HMRC. At this stage the timescale is unknown, although the Chancellor suggested the first payouts could be made by the end of April at the latest. Please see here for more details of support that may assist with cash flow through this time.

What does Furloughed mean?

There is no previous legal term for this and it is a completely new concept to English Employment Law. The common definition of to ‘furlough’ is to allow or force someone to be absent temporarily from work.

We understand that if an employer needs to make an employee redundant or lay them off, they can instead discuss with the employee them becoming classified as a ‘furloughed worker’. This would mean they would remain on the employer’s payroll, rather than being made redundant or laid off with no pay. Their employment would continue but they could not undertake any work for the employer while classified in this way.

We are still waiting for the detail, but it seems most likely that if an employee has an express lay off clause in their contract, the employer could designate the employee as a furloughed worker. The employer would need to discuss this with staff.

If the employee does not have a lay off clause in their contract, the employer is likely to need to have a discussion and seek the employee’s consent to be classified as a furloughed worker. Given that the alternative could be redundancy, most employees are likely to agree. This may depend on what amount of paid notice, Statutory Redundancy Pay and holiday pay they would receive if made redundant. It may also depend on whether the employer is able to ‘top up’ the pay (so the furloughed worker is paid 100% not 80%) or offer for the employee to take or be paid for their accrued but not yet taken annual leave as well.

Does the employer have to pay more than 80% to Furloughed Workers?

No – the early guidance is clear that the employer could choose to fund the differences between this payment and the employee’s salary, but does not have to.

At this point in time we don’t know whether the 80% grant is limited to just salary or whether it extends to include Employers National Insurance or costs for any benefits such as pensions, health insurance etc. Although it seems unlikely, this might mean that the sum actually paid to the employee is less than 80% of net salary, so care should be given by employers when communicating with staff to say that wage payments for furloughed employees will be in accordance with the scheme.

We also don’t know how that 80% would be calculated for those whose monthly or weekly salary varies. Again at this stage it is best to communicate to those staff that payments will be in accordance with the scheme once clarified.

Possible knock on impacts?

At this stage, it is right to feel relieved that there will be a safety net. Further clarification will be welcome, especially in the following areas which could become problematic as this develops:

If an employer need some employees to continue to work, how do they choose who to classify as a furloughed worker and who should work on? In the absence of any guidance, we would recommend a selection criteria akin to a redundancy selection matrix, making sure you avoid any discriminatory criteria. It will be interesting to see whether any Government emphasis is placed on giving furloughed status to those who have medical conditions that place them at higher risk from Covid-19 or those who need to care for dependants. Without that Government emphasis employers may face discrimination risks in doing so.
How do you deal with dissatisfaction of those good employees that you ask to carry working on, when other possibly less high performing employees are offered and become furloughed?
How do you deal with those on Maternity? We expect it will be the position that those on maternity remain on maternity leave until they wish to return, at which point you would need to assess whether there is work for them or offer them to be furloughed. This could cause issues given that the payment to employees who are furloughed could be significantly higher than statutory maternity pay.
What about those who are currently off sick or self isolating on SSP? Should they be furloughed?
If there is a delay in payment by HMRC, can you pass that delay on to your employees? This seems unlikely to be encouraged and without provision by the Government may amount to a breach of contract or unlawful deduction of wages. HMRC has set-up a dedicated helpline on 0800 0159 559 for businesses and individuals in financial distress.

We anticipate HMRC will provide details in due course and we will provide updates regularly. In the interim we recommend you regularly check the Gov.uk website which is being updated most days.