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Thursday, March 28th, 2019

Legal update: Employment – online personal tax accounts; income tax; national insurance; student loan repayments

The following update has been received from Sandy Adirondack, voluntary sector legal expert: www.sandy-a.co.uk.

To join the legal updates email list, contact legalupdate@sandy-a.co.uk.

Online personal tax accounts

HMRC is encouraging individuals on PAYE to sign up for an online personal tax account, through which they can inform HMRC of changes to address or financial circumstances; print proof of their national insurance number; obtain pay and tax details for the previous four tax years; claim tax relief on business expenses; update information held by HMRC about work-related benefits, such as a company car or medical cover; check their state pension situation; administer tax credits; claim a tax refund, and more. This may save having to get this information from your organisation’s HR person. Further information is at https://www.gov.uk/personal-tax-account.   

Resources: PAYE, national insurance and statutory payments

New rates for income tax and national insurance come into effect on 6 April 2019, with the main ones outlined below. New rates for statutory sick pay come into effect on 6 April 2019 and for statutory maternity, paternity, adoption and shared parental pay on 7 April 2019.

Details of the new rates are at:

Deductions for tax, national insurance contributions, statutory sick pay, statutory maternity etc pay, student loan repayments etc are all calculated by payroll software.

England and Northern Ireland: Income tax rates and thresholds

From 6 April 2019 the basic personal allowance for most taxpayers in England and Northern Ireland is £12,500 per year (£240 per week, £1,042 per month), increased from £11,850 per year. An individual’s personal allowance varies depending on a number of factors, and is reduced by £1 for every £2 of “adjusted net income”.

From 6 April 2019 tax rates on annual earnings above a person’s personal allowance are:

  • Basic tax rate remains 20%, from their personal allowance up to £37,500.
  • Higher rate remains 40%, from £37,501 (increased from £34,501) to £150,000.
  • Additional rate remains 45% above £150,000 (no change). 

Emergency tax codes from 6 April 2019 are 1250L W1, 1250L M1, and 1250L X.

For more information see Resources, above.

Tax exemption for travel expenses

HMRC provides benchmark scale rates which employers can pay tax-free for meals while staff are on business travel in the UK, and overseas scale rates for meals and accommodation while on travel overseas. From 1 April 2019, employers who pay these HMRC benchmark or overseas scale rates will no longer have to see receipts proving the worker actually had a meal or stayed in accommodation on that date. The employer only has to ensure the employee took a qualifying business journey, and will need to have procedures in place to show this if HMRC checks. A qualifying business journey is travel undertaken in the performance of an employee’s duties or travel to a temporary place of work, and the travel must be substantially different from the ordinary journey from home to work.

The relaxation on the need to obtain receipts does not apply where the employer uses scale rates agreed with HMRC or uses industry-wide rates agreed with HMRC.

For more information: Changes to HMRC’s benchmark scale rates for subsistence expenses. Smith Cooper accountants, 8 Jan 2019: via http://tinyurl.com/yxwzwa4h.

National insurance rates and thresholds

National insurance rates and thresholds are the same throughout the UK. From 6 April 2019 the national insurance lower earnings limit (the lowest level of earnings that can count towards entitlement to statutory sick pay and statutory maternity, paternity, adoption and shared parental pay) is £118 per week (£512 per month, £6,136 per year), increased from £116 per week.

Employee’s (primary) national insurance contributions

The starting point for employee’s national insurance contributions, the primary threshold (PT) is £166 per week (£719 per month, £8,632 per year) from 6 April 2019, increased from £162 per week. The upper earnings limit (UEL) is £962 per week (£4,167 per month, £50,000 per year), increased from £892 per week. 

Employees’ NICs remain 12% between the primary threshold (PT) and upper earnings limit (UEL), and 2% on earnings above the upper earnings limit for employees in NI category A, apprentices under 25 (category H), and employees under 21 (category M). 

Other NI categories are B (5.85% between the PT and UEL and 2% above the UEL); category C (nil); and categories J and Z (2% between the PT and UEL and 2% above the UEL).

Employer’s (secondary) NICs

The starting point for employer’s NICs is the secondary threshold (ST) is the same as the primary threshold at which employees start paying NICs: from 6 April 2019, £166 per week (£719 per month, £8,632 per year) from £162 per week. The upper secondary threshold for under 21s (UST) and the apprentice upper secondary threshold for apprentices under 25 (AUST) are £962 per week (£4,167 per month, £50,000 per year), increased from £892 per week. 

For NI categories A, B, C and J, employer’s NICs remain 13.8% on all earnings above the secondary threshold. Employers are exempt from NICs on earnings up to the UST or AUST for categories H (apprentices under 25), M (under-21s) and Z (under-21 deferment), but pay 13.8% employer’s NICs on income above this. 

To ensure that national insurance is paid correctly for workers under the age of 21 and apprentices under the age of 25, it is essential to maintain accurate records of employees’ date of birth. 

At the end of tax each year, employers must pay class 1A national insurance on work benefits in kind (BIKs) provided to employees, such as a company mobile phone.

For more information see Resources, above.

National insurance on termination payments: Postponed to 2020

When a contract of employment allows an employer to dismiss an employee by making a payment in lieu of notice (PILON) rather than giving the notice to which the employee would be entitled, the payment is subject to tax and employer’s and employee’s class 1 national insurance contributions in the usual way, even if the contract says that the payment is discretionary.

But where there is no contractual entitlement for the employer to make a PILON, any such payment up to £30,000 was in the past treated as compensation for breach of contract rather than pay, and was not subject to tax or NICs. This changed for terminations taking effect on or after 6 April 2018. Since then, even if the payment is not contractual, some or all of the PILON is subject to tax and NICs.

For tax purposes, the PILON is divided into two parts, with a statutory formula for calculating how much of the total payment falls into each part.

  • Post-employment notice pay (PENP) represents the basic pay the employee is not receiving because their employment was terminated without full or proper notice being given. This is subject to tax and NICs in the usual way.  
  • The remaining balance of the termination payment or benefit is non-PENP. This is subject to tax (but not NICs) only if it is over £30,000

The government intended to impose employer’s class 1A NIC on termination payments over £30,000 from 6 April 2018. This was postponed until 6 April 2019, but the government announced in its autumn 2018 budget that it would be postponed again, and would take effect for payments on or after 6 April 2020.

For more information: Employer NICs on termination payments delayed again. Lewis Silkin solicitors, 1 Nov 2018: via https://tinyurl.com/y3mncwxl. Plus the link in the article to their Inbrief guide, which is the clearest explanation I have found of these changes.

Student loan repayments

For student loans on repayment plan 1, the annual threshold from 6 April 2019 is £18,935 (£1,577.91 per month, £364.13 per week, increased from $18.330 per year. For those onplan 2, the threshold is £25,725 per year (£2143.75 per month, £494.71 per week (increased from £25,000 per year).

For postgraduate loans in England and Wales, the threshold from 6 April 2019 is £21,000 (£1750 per month, £403.84 per week). There are different arrangements for postgraduate loans in Scotland, Wales and Northern Ireland.

The repayment rate is 9% of pre-tax income above the threshold for student loans and 6% for postgraduate loans.

For more information: https://www.gov.uk/guidance/special-rules-for-student-loans.