Key Employment Tax changes for 2020/21

Key Employment Tax changes for 2020/21

Having commenced 6 April 2021, the new tax year brings with it evolving tax issues that need to be considered. It is important to highlight any changes which employers should be aware of, specifically from an employment tax perspective, as we head further into the tax year.

PAYE Tax and National Insurance

Tax

One of the first changes to be aware of, relates to both the Personal Allowance (PA) and the Higher Rate (HR) thresholds, which have increased in line with the Consumer Price Index (CPI) up to £12,570 and £50,270 respectively. It’s worthwhile noting that currently these have been frozen until April 2026.

The income tax bandings for the 2021/22 tax year are*:

*Please be aware the rates are different in Scotland:

Emergency tax codes from the 6 April are:

• 1257L W1
• 1257L M1
• 1257L X

National Insurance

With regards to National Insurance, the Class 1 Employee threshold has risen to £9,568 and the Employer threshold has increased to £8,840.

The Upper Earnings Limit (UEL) has increased to £50,270. This increase also applies to the Upper Secondary Threshold (UST) for employees (under 21) and the Apprentice Upper Secondary Threshold (AUST) (apprentice under 25).

There is no change to the rates at which both Class 1 Primary and Secondary National Insurance Contributions are charged.

National Minimum wage (NMW) and National Living Wage (NLW)

From 1 April 2021, the point at which an employee qualifies for the NLW has fallen from 25 to 23 years of age.

NMW and NLW rates have also increased, as set out in the table below:

Prior to the Coronavirus crisis, HMRC had an active team checking NMW and NLW. As we begin to return to normality, it is expected HMRC will “ramp up” their checks. Because of this it is important to not only check the rates you are paying, but to think wider, for example regarding deductions from employee’s net pay, which may need to be considered for NMW purposes.

Company cars, vans, and fuel

Optional Remuneration Arrangements (OpRA) ‘grandfathering’ rules ceased from 6 April 2021. These are rules which applied to arrangements for car salary sacrifices arrangements entered before the 6 April 2017.

For electric and some hybrid company cars the rate at which the ‘list price’ of the vehicle is charged to establish the benefit in kind changed from 0% to 1% from 6 April 2021. The rate will increase to 2% from next April.

The benefit charge for cars (other than electric cars) first registered after 5 April 2020, has risen by 1%.

The Fuel Benefit cash equivalent amount increased to £24,600 from £24,500 in the 2020/21 tax year.

The benefit cash equivalent for company vans increased to £3,500 (from £3,490) and for fuel in a van provided for personal use, the cash equivalent increased to £669 (from £666).

To find out more regarding company vehicles and how this may impact reporting on P11Ds, please view our recent webinar (see details below).

Other Employment Tax points to consider

Statutory Sick Pay (SSP)

Small and medium-sized employers can continue reclaiming up to two weeks of eligible SSP costs per employee from the Government for Coronavirus related sickness.

Student Loans

From 6 April 2021 the earnings threshold before an employee start to repay a student loan for:

• Plan 1 loans rises to £19,895 (from £19,390).
  
  
• Plan 2 loans rises to £27,295 (from £26,575).
  
  
• A new Plan 4 scheme is being introduced for all new and existing Scottish loans with a threshold of £25,000 – anyone with an existing Scottish loan will be moved from their existing Plan 1 to Plan 4.
  
  
• The threshold for repayment for Directors who are paid salary and dividends, and are paying back a student loan, will be based on their total income.

New IR35 rules for Medium and Large businesses

New rules went live from the 6 April 2021 for medium and large businesses who engage with ‘off-payroll’ workers that are providing their service through an intermediary such as a Personal Services Company (PSC).

These rules require the ‘End Engager’ to determine if IR35 applies to the contract and if so, treat them as a ‘Deemed Employee’ if paying the workers PSC, or pass the instruction on if another entity in the supply chain pays the worker.

With the increased focus on IR35, HMRC are now looking more generally at ‘off-payroll’ workforces, including sole traders who present a risk to engagers for prior years rather than from 6 April 2021, with any PAYE failure falling on the “employer” if re-categorized?

Construction Industry Scheme (CIS)

Some changes to the CIS have been made from 6 April 2021:

1. HMRC can now amend the CIS deduction amounts claimed by sub-contractors on their Real Time Information (RTI) Employer Payment Summary (EPS) returns.
2. Only where a sub-contractor directly incurs the cost of materials purchased to fulfil a construction contract, that the cost in question is not subject to deduction under the CIS.
3. The third change applies to businesses operating outside of the construction sector where they need to operate the CIS as a so called “Deemed” Contractor. Broadly this is a business which is not a contractor operating in the construction sector but nevertheless does carry out some construction work, and such businesses can come under the scheme rules where they spend sufficient on construction. Rather than reviewing the spend on construction activities annually to determine the level of expenditure, a Deemed Contractor will need to monitor the relevant expenditure more regularly and apply the CIS when construction expenditure exceeds £3m within the previous 12 months.

Want to know more?

The Azets Employment Tax team are on hand to support employers and their businesses as they navigate the changes arising from the new tax year.

If you have any queries regarding the areas discussed throughout this insight, have any other Employment Tax related questions, or would like to arrange a call with a member of the team, please get in touch with your local Azets contact or a member of our Employment Tax team.

Watch our webinar | Employment Tax Spring update, including P11Ds

On 6 & 13 May 2021, our Employment Tax specialists, Jez Howson, Jo Gander, Rio Brookes-Gibbs and Scott Hutchison, hosted a webinar, exploring the evolving employment tax issues as we head further into the new tax year and highlighted any changes to legislation employers should consider. More specifically, our team discussed some key areas that require reporting on P11Ds, or via a PAYE Settlement Agreement (PSA), and considered these in a COVID context.

To watch our webinar recording and download a copy of our slides, please click here.