The new Chancellor has been in post less than a month and has already delivered what is being reported as the most radical ‘fiscal event’ for over half a century.
Kwasi Kwarteng unleashed a range of proposals designed to get the UK’s economy growing at speed in the wake of rising inflation, soaring energy costs and waning consumer confidence as the cost of living bites.
There has already been plenty of coverage on what Kwarteng’s announcements mean for your personal finances, and commentary on the fall-out from his statement in the House of Commons on Friday 23rd September has centred around support on energy bills, stamp duty and how the new initiatives will be funded.
But there were some important nuggets in the announcement that will have a big impact on the way that businesses continue to conduct themselves, and changes they’ll need to be abreast of right now and into next year.
Here’s a look at what those announcements mean for payroll and your business as a whole.
The ‘rabbit in the hat’ announcement on Friday 23rd September was that income tax will be slashed. The base rate of 20% will drop to 19% and take effect in April 2023. Top earners would have seen a 5% reduction on a portion of their earnings from 45% to 40%, however, as the result of a major government U-turn this was scrapped on 3rd October due to harsh public criticism.
Payroll departments will want to ensure that their forecasts take into account the tax cut, as well as making sure their payroll calculations (and software) are correctly calibrated from the start of the next financial tax year.
April’s National Insurance hike of 1.25 percentage points will also be scrapped from November 6th this year.
The government has urged businesses to ensure their payroll systems are updated to reflect the move, with HMRC noting in a communication that: “We realise the timeline for this is tight and some employers may not be able to implement the changes in time. HMRC will be directing employees to their employers to correct any overpaid NICs (National Insurance Contributions) in the first instance.
“We have also written to payroll software developers to make them aware of these changes and asked them to take the relevant actions. You should, therefore, contact your software development initially with any queries.”
IR35 has caused havoc within markets that rely heavily on temporary, contracted skills such as freelancers, with Kwarteng himself noting that ‘reforms to off-payroll working have added unnecessary complexity and cost for many businesses’.
That’s about to change, with the Chancellor announcing that he will scrap the 2017 and 2021 reforms to the IR35 off-payroll working rules, meaning that freelance workers who provide and invoice for their services through their own limited company, may no longer have to subscribe to R35 rules.
This announcement will simplify things for internal payroll and accounts teams when working with external specialists on a short-term or contracted basis as the burden and liability of calculating tax contributions now fall back onto the individual providing their services, which will take effect from 6th April next year.
Hourly pay rates for employers voluntarily offering a Real Living Wage to employees will rise by £1 to £10.90 across the UK, and by 90p to £11.95 in London. This will affect around 400,000 workers at businesses that pay this wage level, and marks the biggest one-off rise in the scheme’s history.
Payroll departments will need to make sure this pay rise reflects in relevant workers’ payslips, and budget for increased wage outlay too.
One of Kwarteng’s missions is to fill the hole in the jobs market by encouraging people not yet working at full-time hours in the UK to do more.
The first step on his plan to achieve this was set out on Friday as the minimum level of hours in which a benefit claimant can work has been increased.
Part time workers will now have to work at least 15 hours a week to continue getting governmental support, up from 12 hours.
Businesses will need to stay abreast of when the new 15-hour minimum will take effect and expect an uplift in requests from part-time staff to increase their hours as well as forecasting how these additional requests can be budgeted for.
It has already been a trying period for payroll professionals, ever since the start of the pandemic, and the next six months look set to be just as hectic as pay and tax calculations need to be adjusted, and fresh legislation covering everything from contractor relationships to holiday pay are introduced by the start of the new financial year.
At Phase 3, we support businesses with bite-sized payroll consultancy, designed for times like this where there are many changes to stay abreast of. We ensure that your current procedures are compliant with existing regulations, and also look to the future to advise on upcoming changes you need to be aware of, and how to mitigate them.
Payroll becoming too much of an internal burden? Our managed payroll services can alleviate the stress of accurately paying your staff each month. Our award-winning team is ready to speak to you should you wish to explore outsourcing your payroll today.
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