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UK payroll year-end: What’s changing this year

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Annie Wagstaff

Mar 30, 2020

We recognise that completing year-end will be more challenging this year as businesses are managing the impacts of COVID-19. We’ve built a guide for completing your year-end in Xero, but also wanted to make it easier for you, by highlighting the up and coming changes all in one place.

Managing COVID-19 Statutory Sick Pay

We understand that managing Statutory Sick Pay (SSP) for employees that are self-isolating because of COVID-19 adds a further burden at a time when reconciling is key. Xero has updated the SSP modal to support you through these changes. As our first step we’ve added a checkbox to the SSP modal that will allow you to indicate if time off has been taken due to self-isolation. Xero will then waiver the 3 waiting days for you and automatically calculate the SSP from day 1.

2020/21 Tax Year – Xero will take care of the following:

These rates will be automatically applied in the background and the calculation will continue to be done by Xero:

Income tax rates and thresholds

  • UK wide personal allowance will remain £12,500
  • England, Northern Ireland and Wales rates and thresholds remain unchanged
  • Scotland starter and basic rate will increase to £2,085 and £12,658 respectively from the 11th May 2020.

NI rates and earning limits

  • The lower earnings limit will increase from £6,136 to £6,240 
  • The primary threshold will increase from £8,632 to £9,500 
  • The secondary threshold will increase from £8,632 to £8,788.

Statutory rate increases

  • From £148.68 to £151.20 (Maternity, Adoption, Paternity, Shared Parental Pay, Bereavement)
  • From £94.25 to £95.85 (Statutory Sick Pay).

Student loans

  • The threshold for Student loan Plan 1 will update from £18,935 to £19,390
  • The threshold for Student loan Plan 2 will update from £25,725 to £26,575 
  • Postgraduate loan thresholds remain unchanged.

Tax codes

  • We will carry all existing codes into the new tax year automatically, clearing down W1/M1 values
  • Don’t forget, Xero will continue to automatically update individual tax notices from HMRC.

Report updates

  • P60 reports for the 2019/20 tax year will be available shortly for you to share with employees through My Payroll 
  • P11 and P32 reports will also be updated to support the new tax year.

Earlier Year Update (EYU)

The option to submit an EYU for 2019/20 will be available from 20th April 2020.

Employment allowance

Annual allowance for eligible employers will increase from £3,000 to £4,000.

What you need to do:

Employment allowance

HMRC has revised who is now eligible to claim Employment Allowance. We’ve increased the allowance for you, all you need to do is check your entitlement and update the payroll settings to declare your eligibility. You also need to select which industry sector your business falls within.

National living wage increases

National living wage for employees aged 25 and over will increase from £8.21 per hour to £8.72 per hour. If these changes affect your employees, update their salary and wage details

National Insurance categories

Review any National Insurance deferral certificates. You need to make sure your employees are using the correct National Insurance category at the beginning of the tax year.

New Upcoming Features in Xero

Bereavement leave

  • New legislation from April 2020 for a statutory right to a minimum of 2 weeks’ leave for all employed parents if they lose a child under the age of 18, or suffer a stillbirth from 24 weeks of pregnancy
  • In Xero, we will be adding Bereavement leave to our Time Off feature. This will be set up to calculate automatically and will work in the same way as our Statutory Time Off feature

Termination Awards

  • When processing termination payments, an employee can receive up to £30,000 tax free. Any amounts over £30,000 are subject to PAYE tax. From April 2020, employer Class 1A NICs will also be due on the amount above the threshold
  • From April, these termination payments will need to be processed through payroll. Reporting of both tax and class 1A NICs will be included in RTI
  • In Xero, we are adding a termination pay item that you can use for any eligible payments.  Enter the full value an employee will receive and we will automatically work out the tax and NI over the £30,000 threshold.

We’ve put together a handy Payroll and Expenses fact card with all the facts and figures you’ll need for the 2020/21 Tax Year all in one place.

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