As the new tax year arrives, payroll returns into focus for many employers.
While payroll can sometimes be seen as a routine admin task, the reality is very different. Each new tax year brings important changes that can affect both employers and employees and getting them wrong can lead to unnecessary cost, confusion and compliance issues.
From increases in the National Minimum Wage to tax code changes and updates to statutory payments, there is plenty for businesses to keep on top of now April has arrived.
National Minimum Wage increases
For many employers, the biggest payroll change at the start of the tax year is the increase in National Minimum Wage rates:
The updated rates are:
- Apprentices: increasing from £7.55 to £8.00 per hour
- Ages 16 to 17: increasing from £7.55 to £8.00 per hour
- Ages 18 to 20: increasing from £10.00 to £10.85 per hour
- Ages 21 and over: increasing from £12.21 to £12.71 per hour
Although some increases may seem modest at first glance, the impact on payroll costs can be significant, especially across a wider workforce.
Although businesses were given a heads up on these changes in last year’s Autumn budget, it is important to review staffing costs carefully now and consider the effect on pricing, profitability and budgeting for the year ahead.
Minimum wage is not just about hourly pay
Minimum wage compliance is not always as straightforward as checking an employee’s hourly rate.
There are other factors that can affect whether an employee is being paid correctly, including:
- Time spent in meetings outside normal working hours
- Mandatory training
- Salary sacrifice arrangements
Salary sacrifice is one area that can easily catch employers out. If an employee is sacrificing part of their salary, their remaining pay must still not fall below the minimum wage threshold. In practice, this means employees already on minimum wage may not be able to participate in certain salary sacrifice schemes.
The true cost of employing someone
When wages increase, it is not only gross pay that rises. Employers also need to account for additional costs such as:
- Employer’s National Insurance
- Employer pension contributions
An employee working 37.5 hours per week on minimum wage could cost an employer an additional £1,150 per year, once these extra costs are included.
This is an important reminder that when hiring or budgeting for staff, employers need to look beyond headline salary figures and consider the full cost of employment.
Tax code changes and what employees should watch for
Another common issue at the start of a new tax year is a change in tax code.
Many employees are familiar with the standard tax code 1257L, which usually means they are entitled to £12,570 of tax-free pay before Income Tax is applied. However, if a tax code changes that does not automatically mean it is wrong.
Tax codes can be affected by a range of factors including:
- Changes in income
- Estimated earnings from previous years
- Tax reliefs and allowances
- Benefits or untaxed income
- Savings interest and other individual circumstances
A common misconception is that payroll providers or employers decide to change tax codes. In reality, tax code changes are issued by HM Revenue & Customs (HMRC) based on the information they hold.
HMRC is only able to work with the information available to them, and this may not always be up to date. For that reason, employees should check their payslips regularly and review any tax code changes carefully.
Having access to a personal Government Gateway account can be particularly useful, as it allows employees to see why HMRC has issued a particular code and whether the information being used is correct.
What about directors and those that are self-employed?
For directors or people who are both employed and self-employed the position can be different.
Where professional advisers have the appropriate authority with HMRC, they may be able to review and discuss tax codes on behalf of the individual.
This can be especially useful where tax codes are based on outdated assumptions, such as expenses claimed in a previous year that no longer apply.
Correcting a tax code early can help avoid underpayments or unexpected tax bills later in the year.
Other key payroll changes this tax year
In addition to wage increases, there are other important changes employers should be aware of.
Statutory Sick Pay from day one
One of the biggest developments this tax year is the change to Statutory Sick Pay (SSP).
Previously SSP involved a three-day waiting period with payment starting from the fourth qualifying day of sickness. Under the new rules SSP begins from day one.
This has a direct cost impact for employers because unlike some other statutory payments SSP is not reimbursed by the government – it is paid by the employer.
For businesses this means more careful absence cost planning will be needed.
Changes to paternity pay eligibility
Another important change relates to paternity pay.
Previously, employees generally needed a longer qualifying period of employment before becoming entitled. Under the new rules, eligibility begins from day one of employment.
Why payroll is not just an admin task
Payroll should never be viewed as a simple Friday afternoon task.
Behind every payroll run there are numerous responsibilities and compliance requirements, including:
- Processing starters and leavers correctly
- Applying P45 information accurately
- Using the correct tax codes and year-to-date figures
- Calculating holiday pay correctly
- Filing RTI submissions on or before payday
- Submitting EPS returns on time
- Managing pension obligations and re-declarations
- Keeping up with HMRC deadlines and regulatory changes
When payroll is not handled properly – there are consequences:
- Employees being paid incorrectly
- Reduced trust between employer and staff
- Incorrect HMRC liabilities
- Interest and penalties
- Greater risk of an HMRC compliance check
Is outsourcing payroll worth it?
For many businesses outsourcing payroll can be a practical and cost-effective solution.
A professional payroll team brings specialist knowledge, keeps up with changing legislation, meets deadlines and helps reduce the risk of costly errors. It also frees up business owners to focus on running their business rather than navigating complex payroll rules.
Business owners are experts in their fields – you should not have to become a payroll specialist just to ensure staff are paid correctly and compliance obligations are met.
Final thoughts
The start of a new tax year is always a good time to review payroll processes and make sure everything is working as it should.
With rising wage costs, changes to statutory payments, ongoing tax code issues and strict HMRC reporting requirements, payroll is becoming increasingly complex. What may look straightforward on the surface often involves far more detail behind the scenes.
Getting payroll right protects your business, supports your employees and helps avoid unnecessary issues with HMRC.
If you would like advice on payroll or support with managing your payroll responsibilities, please get in touch with SeavorChartered. Our team will be happy to help.
