Payroll -out with the old and in with the new

It’s that time of year again where you have to finish one payroll year correctly and start the next. Here’s what you will need to do:

End of year reporting and tasks

Send your final payroll report of the year.

This has to be done on or before your employees’ payday. This is the ‘Full Payment Submission’ (FPS) that is sent each payroll run.

Send your Employer Payment Summary (EPS)

This lists the statutory pay (maternity, paternity, CIS, etc.) for the year. This is where you can tick the ‘Claim NIC employment allowance = “yes”’ box if it’s appropriate.

You can claim up to £3,000 per year if your NIC bill was less than £100,000 the previous tax year. However, regardless of the size of the company, you can’t claim the employment allowance if:

  • You’re the director and the only employee paid above the Secondary Threshold;
  • You employ someone for personal, household or domestic work (like a nanny or gardener) – unless they’re a care or support worker;
  • You’re a public body or business doing more than half your work in the public sector(such as local councils and NHS services) – unless you’re a charity;
  • You’re a service company working under ‘IR35 rules’ and your only income is the earnings of the intermediary (such as your personal service company, limited company or partnership).

You must also check that the ‘Yes’ in the ‘Final submission for year’ field is ticked.

Update employee payroll records

For each employee working for you on 6th April, you’ll need to prepare a payroll record, identify their new tax code and enter it in to the payroll software.

You should include in your payroll all employees you pay in the tax year, no matter how much you pay them and any employee who has worked for you in the current tax year (since 6 April) even if they’ve already left.

Update payroll software

The software should prompt you to update and to create a new financial year on the last payroll run of the year.

Give your employees their P60

This applies to all staff who are working for you on the last day of the tax year (5th April). This is a summary of their total pay and deductions for the year. This must be done by 31st May.

Report expenses and benefits

This must be reported to HMRC by 6th July.

Tax year 2019 – 20

New tax thresholds

The Personal Allowance rises from £11,850 to £12,500, meaning that no tax is paid on wages up to this figure.

There are three tax bands for earnings above £12,500:

Basic Rate                 20% on £1 – £37,500 (i.e. for total earnings £12,501 – £50,000)

Higher Rate               40% on £37,501 – £150,000 and

Additional Rate         45% on £151,001 and above.

New tax codes

Form P9X (2019) from HMRC gives the tax codes to use from 6th April 2019.

The new emergency code is 1250L for all employees (currently 1185L). If HMRC do not send you a new tax code then add the following to the current code:

Add 65 to any tax code ending in L, for example 1185L becomes 1250L;

Add 71 to any tax code ending in M;

Add 59 to any tax code ending in N.

Do not copy or carry over any ‘week 1’ or ‘month 1’ markings.

National Insurance

The Class 1 National Insurance thresholds are also increasing.

The lower earnings limit (LEL) is the point at which you can claim NI credits but NI rate is 0%. For 2019 – 20 it is £6,136 per year. If you employ someone and pay them this amount or more you have to register for PAYE. The bands are:

Year Pay per week Pay per month Pay per annum Rate (category letter A)
Lower earnings limit (LEL) £118 £512 £6,136 0%
Primary Threshold (PT) £166 £719 £8,632 20%
Secondary Threshold (ST) £166 £719 £8,632 20%
Upper Secondary Threshold (under 21) (UST) £962 £4,167 £50,000 2%
Apprentice UST (AUST) £962 £4,167 £50,000 2%
Upper Earnings Limit (UEL) £962 £4,167 £50,000 2%

Employers National Insurance (for category letter A) is 0.00% for earnings at or above LEL up and including ST.

For earnings above ST up to and including UEL/ UST/ AUST, it is 13.80%

 NationalMinimum Wage

The national minimum wage goes up on 1st April:

Year 25 and over 21 to 24 18 to 20 Under 18 Apprentice
April 2018 (current rate) £7.83 £7.38 £5.90 £4.20 £3.70
April 2019 £8.21 £7.70 £6.15 £4.35 £3.90
Increase 4.85% 4.34% 4.24% 3.57% 5.41%

Almost all workers are entitled to it by law. HMRC detail the exceptions.

 The Workplace Pension

The contribution rates increase for both employers and employees on 6thApril. There are currently no plans for future increases.

The employer’s contributions rise from 2.0% to 3.0% and

The employee’s contributions rise from 3.0% to 5.0%.

This gives a minimum total of 8.0%. However, should the employer pay more, say 4.0% then the employee, should they wish, could pay less, say 4.0% and still maintain the 8.0% minimum. Both employer and employee can pay more than the minimum.Hopefully this has been of use as a checklist of things to do. It is not comprehensive and you should check on statutory sick pay, maternity & paternity pay, student loans, etc.as appropriate.


Top 10 mistakes employers make when paying the National Minimum Wage

The following is from HMRC Employer Bulletin #75.

There are lots of reasons why an employer might find themselves not paying the National Minimum Wage (NMW) correctly. To help you avoid making mistakes we have drawn together a list of the most common reasons that cause underpayment.

1. Failure to apply the annual minimum wage rate increase as they go up each year on 1 April.

2. Missed birthdays as employees turn 18, 21 or 25 years old and move from one NMW rate to another.

3. Paying the apprentice rate to somebody who isn’t actually an apprentice. Recognised apprentices must have an apprenticeship contract and undergo an element of structured training.

4. Continuing to pay the apprentice rate for too long. The apprentice rate only applies to apprentices who are under the age of 19, or if aged 19 or over within the first year of their apprenticeship.

5. Making wage deductions for items or expenses that are connected with the job. This could include, for example, safety clothing, uniforms, tools etc.

6. Making wage deductions that are deemed to be for the employer’s “own use or benefit”. For example a Christmas club saving scheme. It doesn’t matter that the worker can choose to buy into the scheme and the employer doesn’t have to make a profit from it.

7. Charging a worker more than the stated offset rate for living accommodation, currently £49.00 a week.

8. Not paying for all the time worked such as time spent travelling, training or downtime at the employer’s disposal.

9. Not paying for additional time worked such as time spent clearing security checks once a worker’s shift has finished.

10. Including elements of pay that don’t count towards minimum wage such as tips and the premium element of pay associated with shift premium.

All of the above are mistakes that are easy to make –another one that, whilst it doesn’t affect the minimum wage, can skew pay rates is not applying the rate increase to any higher overtime rates that you may pay.

Not paying for all the time worked is also an easy one to overlook –such as a nurse or carer travelling between appointments with different clients on the same day.

Current rates

The rates below are for the National Living Wage and the National Minimum Wage. The rates change every April.

Year 25 and over 21 to 24 18 to 20 Under 18 Apprentice
April 2018 (current rate) £7.83 £7.38 £5.90 £4.20 £3.70
April 2019 £8.21 £7.70 £6.15 £4.35 £3.90
Increase 4.85% 4.34% 4.24% 3.57% 5.41%


Apprentices are entitled to the apprentice rate if they’re either:

aged under 19

aged 19 or over and in the first year of their apprenticeship

Example (for this year): An apprentice aged 22 in the first year of their apprenticeship is entitled to a minimum hourly rate of £3.70.

Apprentices are entitled to the minimum wage for their age if they both:

are aged 19 or over

have completed the first year of their apprenticeship

Example (for this year): An apprentice aged 22 who has completed the first year of their apprenticeship is entitled to a minimum hourly rate of £7.38.

Accommodation rates

Accommodation provided by an employer can be taken into account when calculating the National Minimum Wage or National Living Wage.

No other kind of company benefit (such as food, a car, childcare vouchers) counts towards the minimum wage.

Accommodation offset rates

The accommodation rates are set in April each year.

Year Daily accommodation
offset rate
Weekly accommodation
offset rate
April 2018 (current) £7.00 £49.00
April 2019 £7.55 £52.85
Increase 7.86% 7.86%

The above can seem daunting but need not be if it approached step-by-step. If you are finding it too time consuming or you are concerned about getting it right, a payroll bureau will be able to help and take the hassle away from you. They will also be able to deal direct with HMRC if there are any problems if they become your agent.