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Stepping through UK payroll year end

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Shay McCusker

Mar 9, 2022

End of the payroll year is around the corner in the UK – but don’t worry, Xero is here to help you get prepped and ready to go with the guide below.

Wrap up your 2021/22 payroll

Make sure you’ve received all your employees’ final pay values, any leave has been approved and those last minute timesheets are received and processed.

We know that reconciling your posted pay runs is a regular task for you, but it’s always a great idea to run your eyes down the reports, such as the P11s, Gross to Net and Account Transactions reports, to make sure there are no unexpected surprises. You can also take this opportunity to make sure any final employee payments and changes have been put through.

If your business is in the construction industry, you may need to ensure you’ve reviewed and reconciled your CIS suffered for the tax year so you’re prepared to enter an accurate value for the last submission of the tax year.

Complete your final pay run in a few simple clicks

Completing your final pay run is the same process you’ve been doing throughout the tax year. Once you’ve entered any final pay values, simply click through to review, process and post your pay run. Xero will then automatically send off your Full Payment Summary (FPS) and Employer Payment Summary (EPS) by 19 April informing HMRC of your final pay submission of the year…easy peasy! 

If you don’t have any pay runs to make for the final period of the tax year, then you’ll need to post a NIL pay run to trigger your final EPS, updating HMRC that you’re done for the year.

Be careful with your payment date. For your pay run to be reported as the final submission of the tax year, your payment date must fall in tax month 12 (6 March ?? 5 April). If you have a week 53, Xero automatically adjusts the tax calculation for you.

Remember to post your pay run by your final payment date so Xero knows you’re ready to file with HMRC. 

Review and share your employees’ P60s

Once you’ve processed your final pay run, you can review and share your employees’ P60s. It is your legal duty as an employer to provide your employees with this statement by 31 May. 

2021/22 P60s will be available in Xero Payroll from the end of March so you can provide these through our secure Xero Me app as soon as you’re ready. Learn how to generate and review P60 reports.

Get ready for the new tax year

Now that you’ve finalised your 2021/22 payroll, it’s time to review and update your settings in Xero to support a smooth start to the 2022/23 tax year.

Before processing your first pay run of the new tax year, you’ll need to: 

  • Review your eligibility for Employment Allowance and if eligible, activate this allowance for the tax year within the HMRC tab under Payroll settings.
  • Review and/or amend the national insurance (NI) calculation method for any directors on payroll. You can find more information here.
  • Check that your employees have the correct NI category letter, and update any annual deferment certificates. 
  • Ensure that your Corporation Tax UTR has been entered accurately within the HMRC tab under Payroll settings for your first EPS of the new tax year, if you’re claiming CIS suffered through Payroll.This is a new, final task for this tax year. 

Xero’s got you covered

2022/23 tax code updates

Keep a lookout for our banner message on the Taxes tab letting you know when we’ll be updating and rolling out your employee tax codes. You’ll see any updated codes within the draft pay run when reviewing and processing your first payroll of the new tax year. 

Rolling car and van benefits into the new tax year

Ensure you’ve left the ‘available to’ date blank for any car and van benefits that you’re rolling forward into the new tax year. Xero Payroll will automatically insert the new benefit line for the next tax year ready for you to process in your first pay run. 

New national insurance relief

Starting from April 2022, HMRC will introduce new NI categories for the national insurance holiday for employers of veterans and the freeports employer national insurance relief. Any employees who meet the criteria will need to be processed and reported to HMRC under the new category letters. Xero has included these new category letters for you to select and apply to eligible employees to receive the employers NI relief available within these schemes.

There will also be a notification when an employee’s eligibility period for these new NI categories come to an end.

NHS, Health and Social Care Levy

From 6 April, an increase of 1.25% will be applied to the employee and employer Class 1 National Insurance contributions along with the Class 1A, Class 1B and Class 4 National Insurance contributions. This increase will be applied for the 6 April 2022 to 5 April 2023 tax year, and revenue raised will go directly to support the NHS and equivalent bodies across the UK. HMRC have requested employers include a message within the payslip to inform employees what the increase in contributions relates to. Where software is unable to support this request, employers will need to update this manually.

We’ve taken care of this for you and this increase will automatically be applied to the relevant NI categories. Furthermore, we’ve added an approved message to the payslip for you that will remain for the 2022/23 tax year.

Corporation Tax UTR for CIS suffered

As of 6 April, the Corporation Tax UTR will be a mandatory field when claiming CIS suffered through your EPS. Find more information here.

If this isn’t currently entered in the HMRC tab of your Payroll Settings, you’ll be asked to add this when scheduling your next EPS and entering an amount of CIS suffered.

Employment allowance

Xero’s automatically uplifted the employment allowance from £4,000 to £5,000 following the Spring Statement in March. If you are eligible to claim this relief, all you need to do is update the HMRC tab and select the coming tax year.

New National insurance threshold

As of 6 July 2022, the new  Primary threshold for National Insurance will take effect, providing all employees with a higher threshold before the calculation of national insurance contributions. Xero Payroll will support this change along with the current thresholds that apply from 6 April to 5 July across employees and directors.

We’ve prepared a handy guide to Payroll facts and figures for 2022/23 providing everything you need to know all in one place.

Key dates to keep in mind

Here are the important dates to note on your calendar as you step through the UK payroll year end:

  • 5th April – The end of the tax year
  • 19th April – End of the tax year filing deadline
  • 31st May – Deadline to provide employees with P60s
  • 6th July – Deadline to report employer class 1A NICs for Payrolled BIK (P11D(b))

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