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Payroll Update

20 October 2016

We thought it would be useful to highlight some current payroll issues which you should be aware of.

The first thing to note is that from 1 October 2016, the National Minimum Wage and National Living Wage rates increases kicked in:

Year                    25 and over      21 to 24      18 to 20       Under 18      Apprentice

From:  1 Oct 16         £7.20             £6.95          £5.55              £4.00             £3.40

Up To: 1 Oct 16         £7.20             £6.70          £5.30              £3.87             £3.30

In future, there will be no October review, as both the National Minimum Wage and the National Living Wage will increase in April each year, with effect from April 2017.  One annual change to wages rates will make things easier from an administrative point of view, but it does mean that the above rates will change again in April 2017, so they'll be effective for only 6 months.


Secondly, although HMRC have had the right to charge penalties to employers for late submission of monthly payroll information following the introduction of the Real Time Information (RTI) rules, we’ve only recently become aware that these penalty charges are being raised.  Clearly HMRC must now feel that employers have had enough time to get used to the new RTI regime and are not accepting excuses for non filing/ late filing of returns any more.

So when would penalties be charged?  Well …, you can get a penalty if:

  • your Full Payment Submission (FPS) was late
  • you didn’t send in the expected number of FPSs
  • you didn’t send in an Employer Payment Summary (EPS) when you didn’t pay any employees in a tax month

However, HMRC won’t charge a penalty if:

  • your FPS is late but all reported payments you have noted on the FPS are within 3 days of your employees’ payday (this applies from 6 March 2015 to 5 April 2017).  However please note that employers who persistently file after the payment date but within 3 days may be contacted or considered for a penalty
  • you’re a new employer and you sent your first FPS within 30 days of paying an employee
  • it’s your first failure in the tax year to send a report on time (note this doesn’t apply to employers who register with HMRC as an annual scheme)

As you can see from the figures below, the penalties can be quite punitive, particularly if you have a large number of employees, so best to make sure you file your FPS or EPS on time!

Number of Employees           Monthly Penalty

1 to 9                                             £100
10 to 49                                         £200
50 to 249                                       £300
250 or more                                  £400

To make matters worse, if you’re over 3 months late you can also be charged an additional penalty of 5% of the tax and National Insurance that you should have reported.  And if you run more than one PAYE scheme, you can be charged penalties for each.

Voluntary payrolling of benefits in kind

Thirdly, there is a new legislative framework in place to allow for voluntary payrolling of Benefits in Kind (BIKs), available for tax years 2016/17 onwards. As the system is voluntary, employers can choose whether they wish to payroll benefits and also, which of the benefits they provide are to be payrolled. Payrolled BIKs do not need to be reported on Form P11D at the year end.

The advantage to the employee is that their tax is more up to date as benefits are reported in real time but the downside for the employer would be the additional administration involved in preparing the payroll and there would still be a need to record all benefits in kind and pay the annual Class 1A NIC thereon. 

Any employer-provided BIK can be payrolled except for:

  • interest free and low interest loans
  • living accommodation
  • vouchers and credit cards (although it is expected that from 2017/18 employers will be able to payroll vouchers and credit cards).

The BIKs excluded from payrolling (as listed above) and any BIKs that the employer has decided not to payroll must still be reported on Form P11D.

Payrolling can only begin from the start of a tax year and has to apply for whole tax year. This means that an employer can only withdraw from payrolling at the end of a tax year. If an employer wishes to payroll BIKs for the tax year to 5 April 2018 they need to be registered with HMRC before 6 April 2017. Ideally, HMRC would like registration to be made before the annual coding process begins, which is usually around 21 December. This is to prevent the employer receiving multiple tax codes for their employees.

The tax due on payrolled BIKs is collected by adding a notional value to an employee’s taxable pay each pay period in the payroll. Although the tax due on the BIKs is being collected in ‘real time’ under voluntary payrolling, no provision has been made for the collection of Class 1A NICs on a real time basis. The downside to this is that the employer still needs to complete Form P11D(b) by 6 July following the end of the tax year, with the Class 1A NICs paid over to HMRC by 19 July (22 July if paying electronically). When calculating the Class 1A liability, the value of both payrolled and non-payrolled BIKs must be included in the calculation.

Once registered to payroll benefits an employer must straight away notify employees in writing that benefits will be payrolled.  They must also explain what this means for them and provide them with the following before 1 June following the end of the tax year:

  • Details of the benefits that have been payrolled
  • The cash equivalent of each benefit and
  • Separate details of any benefit not payrolled

Pension Auto Enrolment

Finally, just a reminder that, if you haven't dealt with pension auto enrolment yet then you need to start getting organised. All of the information you need about pension auto enrolment is on the website However, we thought it would be helpful to give you a brief headline list of the key things that you need to do, as follows:

You need to:

  1. Check your staging date
  2. Provide the pensions regulator with a point of contact within your organisation
  3. Identify if you have any eligible employees
  4. Ensure your existing pension scheme qualifies for auto enrolment
  5. Choose a qualifying pension scheme if you do not already have one
  6. Check your staff records are up to date
  7. Decide on whether you're going to deal with the administration of auto enrolment in-house using a manual or computerised system or if you're going to outsource this
  8. Send out various communications to your staff e.g. advising them that you're opting them into a pensions scheme and will be making pensions deductions from a particular date
  9. Automatically enrol your staff
  10. Provide the pension scheme provider with ongoing information about the employee/new starts/leavers etc
  11. Make pensions deductions from the payroll
  12. Complete your declaration of compliance

As you can see, there is a lot for you to do!

If you need any further information on any of the above then please get in touch with Linda Johnstone at

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