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By Molly Ward
March 10 — The United Kingdom will see many changes that affect payroll and employers effective April 2016, including a new National Living Wage, Scottish Rate of Income Tax (SRIT) and the real time collection of tax on benefits in kind.
A mandatory National Living Wage of 7.20 pounds ($10.28) an hour for workers over 24 years old will be effective April 1, 2016.
The rate will likely increase to over 20 pounds ($28.56) by 2020, said Chancellor of the Exchequer George Osborne in July of last year.
The National Minimum Wage of 6.70 pounds ($9.58) an hour will still apply to employees age 21-24.
The SRIT is to be set at 10 percent beginning April 6, 2016.
Introduced by the Scotland Act 2012, the SRIT is calculated by reducing the basic, higher and additional rate of U.K. income tax by 10 percentage points and adding the rate set by the Scottish Parliament. The effective overall rate of income tax for those in Scotland will remain at the same rate as the rest of the U.K.
The Scottish Parliament can vary the rate moving forward by any whole number or half a whole number. Setting a rate greater than 10 percent would increase income tax rates in Scotland when compared with the rest of the U.K.
The SRIT will be collected via the Pay As You Earn (PAYE) system and the 10 percent rate is effective for the 2016-17 tax year. The U.K. HM Revenue and Customs will collect the tax on behalf of the Scottish government and notify employers of the tax code applicable to their employees. The introduction of the Scottish rate of income tax will not affect National Insurance contributions.
The maximum value of employment allowance is to rise to 3,000 pounds ($4,283) a year from 2,000 pounds ($2,856) effective April 6.
The National Insurance Contributions (NICs) Employment Allowance was introduced in April 2014, for the purpose of supporting businesses and charities in helping them to grow by cutting the cost of employment.
Eligible employers can claim the allowance, which reduces their Employer NICs bill.
Beginning April 2016, employers can choose to account for the tax on benefits provided to employees through the Pay As You Earn (PAYE) system each payday.
Currently, taxes on employee benefits in kind are collected through an adjustment to the employee's tax code.
Employers must register payroll benefits and expenses using the new online Payrolling Benefits in Kind (PBIK) service in order to take advantage of the new system. The online service will replace the current informal process and registered employers will no longer need to report benefits and expenses on a P11D form.
Once registered on the new system, employers must:
Employers employing apprentices may not need to pay employer Class 1 NICs on earnings below 827 pounds ($1,181) a week or 43,000 pounds ($61,395) a year from April 1.
Apprentices must be under 25 years old and following an approved U.K. government apprenticeship framework in order to qualify.
Employers will no longer be able to apply to HMRC for a dispensation in relation to expenses or benefits that they pay, reimburse or provide to employees and which would previously have been fully matched by a deduction from the employee’s earnings effective April 6.
This means employers will no longer have to pay tax and NICs on qualifying paid or reimbursed expenses payments.
Employers with payrolls over 3 million pounds ($4.28 million) are to be subject to a 0.5 percent payroll tax beginning April 6, 2017, to fund a new government apprenticeship program. Less than 2 percent of U.K. employers will be required to pay.
The final legislation is expected to be introduced in Finance Bill 2016.
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Information on the National Living Wage can be found at https://www.gov.uk/national-minimum-wage-rates.
A news release on the SRIT can be found at http://news.scotland.gov.uk/News/Income-tax-freeze-2285.aspx.
Information on employment allowance can be found at https://www.gov.uk/government/publications/employment-allowance-increase-to-3000/employment-allowance-increase-to-3000.
Guidance on payrolling benefits in kind can be found at https://www.gov.uk/guidance/paying-your-employees-expenses-and-benefits-through-your-payroll.
Information on paying employer NICs for apprentices under 25 can be found at https://www.gov.uk/government/publications/national-insurance-contributions-for-under-25s-employer-guide/paying-employer-national-insurance-contributions-for-apprentices-under-25
Information on P11D Dispensations can be found at https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim30210.
Draft legislation for the apprenticeship levy can be found at https://www.gov.uk/government/publications/apprenticeship-levy.
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