Business Finance: Peter Harrup highlights the growing payroll challenge for employers
- Credit: Archant
Managing payroll tax risks has always been a challenge and this is set to reach a new high in April.
HM Revenue & Customs is becoming progressively active in ensuring it increases its annual tax take, last year generating an additional £11.9billion due to its enhanced focus on compliance and its recovery activities.
In addition, Office of Tax Simplification measures now embedded in legislation will increase the compliance responsibility on employers while also reducing the level of HMRC reassurance currently provided.
The changes to benefits in kind originally recommended by the Office of Tax Simplification have been trialed for some time but the end of dispensations, the abolition of the £8,500 threshold, the new trivial benefits rule and the opportunity to payroll benefits will all create new risks to be managed.
Although the 2016-17 statutory rates for adoption pay, maternity pay, paternity pay and shared parental pay are to remain the same, there are many other changes that take effect for employees from April 6. For example, the £5,000 nil rate band of tax on dividend income and the savings income nil band of £500 will lead to the removal of higher rate tax restrictions from the tax codes of many higher paid employees.
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Similarly, age related personal allowances will disappear (they have been overtaken by the main personal allowance) although perhaps of more concern are the new pension tax relief rules for high earners, which may require remuneration packages to be revisited.
At the other end of the age spectrum, there is the NIC exemption for apprentices under the age of 25, and the National Living Wage of £7.20 per hour for employees aged over 25.
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HMRC views any errors as a potential indication of wider compliance inadequacies (and risk of tax loss), so no employer can afford to take payroll tax compliance lightly. In preparing for next month’s changes, it’s important that employers take a broad view of the way they manage employment tax risks.
We suggest that, as a minimum, employers should understand any inherent risk in their existing practice, implement a robust approach which supports their overall risk and tax management strategy, adapt their approach to better manage costs, set up new, or review existing, processes to evidence strong risk management, and ensure that the responsible employees receive ongoing support and training.
:: Peter Harrup is tax partner at BDO LLP in Ipswich.