Rolling changes: Keeping up with the moves in UK payroll

As we come to the end of 2022, it’s been quite a rollercoaster over the last three years. Abigail Vaughan, Chief Operating Officer at Zellis, takes a look at some of the twists and turns along the way.

Getting staff paid correctly, on time, and with all appropriate deductions and allowances, has become rather more complex than usual. UK payroll software has had to be more agile and adaptable than ever before. 

What’s changed for UK payroll?

Let’s look at some of the most significant moves that have affected UK payroll over the past couple of years, and more to come.

Some of the announced changes were later adjusted, delayed, or scrapped altogether. Even so, organisations had to make payroll preparations, before later reversing or updating them as the case called for. 

Furlough

Date: The scheme was launched on March 2020 at the start of the COVID-19 pandemic and came to an end on 30 September 2021, after being extended on four occasions. 

Context: The Coronavirus Job Retention Scheme helped employers retain and continue paying their workforces during the pandemic.  

The government initially paid furloughed employees 80% of their wages. By the end of the scheme, this had dropped to 60%, with employers covering a further 20%. A total of 117.7 million jobs were furloughed, costing the government £70 billion. 

Outcome: While furlough is now retired, HMRC is conducting audits to ensure recipients were correctly in receipt of the funds.  

Some organisations, such as the Trades Union Congress, have called for the creation of a ‘short-time work’ scheme. This would handle any future disruptions to employment due to events such as future pandemics or the ongoing transition to Net Zero. Another disruptive event could once again call for a similar scheme. 

IR35

Date: Ongoing 

Context: New employment tax rules for IR35 off-payroll workers were introduced in 2017 and 2021, shifting the responsibility of assessing compliance from individuals to their employers.  

This meant organisations now needed to determine the employment status of each of their contractors. If the IR35 rules were found to apply, they became liable for handling their workers’ PAYE and paying their National Insurance contributions.  

Former Chancellor Kwasi Kwarteng announced that he would repeal the changes in the September 2022 Mini-Budget. But his successor Jeremy Hunt reversed this decision in an emergency statement the following month, so the employers are still responsible.  

Outcome: The IR35 rules will remain unchanged, despite some disappointment in the business community.

National Insurance – Health and Social Care Levy, thresholds

Date: Cancelled 

Context: As a temporary measure before implementing its planned Health and Social Care Levy, the Treasury added 1.25% to Classes 1 (employees’ and employers’), 1A, and 1B NI rates in 2022/23. The aim of the levy was to raise £12.4 billion annually for three years until 2024/25, and to ringfence the money to fund the NHS, health, and social care. 

Outcome: Former prime minister Boris Johnson first introduced the Health and Social Care Levy Bill on 8 September 2021.  

Just over a year later in September 2022, former chancellor Kwasi Kwarteng decided to drop the 1.25% rise in the NI element of the scheme from 6 November 2022. At the same time, he also introduced the Health and Social Care Levy (Repeal) Bill, which meant that the levy would not come into force.  

Later, in the Autumn Statement 2022, new chancellor Jeremy Hunt also indicated that the current NI threshold would remain until April 2028. The £150,000 income tax level for the top rate of tax would be reduced to, and frozen at, £125,140. 

Tax investment zones with NI relief  

 Date: Cancelled  

Context: As part of a raft of measures positioned as targeting high growth, Liz Truss’ government set out plans for low-tax Investment Zones. Announced in September 2022, these were slated to include employer National Insurance contributions tax relief. Earnings of up to £50,270 were to be zero-rated for any new employee based mainly in the area.  

 Outcome: Although many local authorities applied to join the scheme, it was withdrawn by new chancellor Jeremy Hunt after Rishi Sunak took over as PM in October 2022.  

National Insurance – employer relief

Date: From 6 April 2022 

Context: From April 2021, special National Insurance (NI) relief was introduced for employers taking on armed forces veterans. However, it was still necessary to calculate and pay their NI contributions before claiming it back. 

Outcome: As of 6 April, 2022, a new code letter ‘V’ was introduced to enable employers to benefit from NI relief upfront.  

Flexible working

Date: Ongoing – TBC 

Context: Employees with at least 26 weeks of continuous service currently have the legal right to request flexible working. This includes working from home for some or all of the working week.  

In September 2021, the UK’s Department for Business, Energy and Industrial Strategy published a consultation document to reform the right to request flexible working. It was part of a new Employment Bill. 

Proposed reforms included replacing the 26 weeks’ continuous service requirement with a new right to request from day one. Another suggestion involved employers having to suggest alternative arrangements to those requested by individual employees. 

Outcome: In December 2022, the Department for Business, Energy and Industrial Strategy said it would introduce a day-one right to flexible working, via secondary legislation.

Minimum wage uplift

Date: 1 April 2023 

Context: The soaring cost of living and ongoing earnings stagnation put a minimum wage rise firmly on the agenda. It was among the most widely expected components of the Autumn 2022 Budget from then-incoming chancellor Jeremy Hunt. 

Outcome: In November 2022, the Treasury announced the increase in minimum wage, known as National Living Wage (NLW). From April, it rises to 9.7% to £10.42 an hour, for those aged 23 and over. 

Directors’ dividend changes 

Date: April 2023, April 2024  

Context: The Autumn Statement sought to increase tax revenue, with the tax-free allowance for directors’ dividends in the frame. Currently £2,000, the threshold is set to fall. This could mean payroll adjustments to maintain desired income and tax balance for those earning via PAYE and dividends.  

Outcome: From April 2023, the allowance will drop to £1,000. It will then half again the following April, to £500.  

What next for UK payroll?

As the country moves forward in a challenging economic environment, we anticipate further fiscal and legislative twists and turns.  

Here are a few new initiatives in progress or on the horizon: 

• Retained EU Law (REUL) Bill: The government has proposed a wholesale withdrawal of EU-derived law. If this goes through Parliament, it could impact both pay and holiday entitlements. 

• Seafarers’ Wages Bill: Introduced in November 2022, this bill seeks to ensure seafarers on ships using UK ports at least 120 times a year are paid the equivalent of the National Minimum Wage. 

• Salary advance schemes: HMRC has recognised that allowing employees access to some of their earned salary before payday is increasingly popular. Amendments to legislation will allow salary advances to be reported on or before the employee’s contractual pay day. This means each payment of salary only needs to be included on a real-time information (RTI) report once, reducing the administrative burden. 

The rate of change illustrates the importance of having a reliable partner who’s on top of their payroll compliance. Reliable UK payroll software and payroll reporting are absolutely essential to stay one step ahead of the game. 

We handle payroll, risk and compliance as managed services for leading UK and Ireland organisations. Learn more here.