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Changes To National Insurance Rates from 6th January 2024

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It was announced in the Chancellor’s Autumn Statement in November 2023 that National Insurance rates were to be cut for millions of workers.
The changes to National Insurance Rates from 6th January 2024 are as follows:
Class 1 National Insurance contributions will be cut by 2%, reducing from 12% to 10%.

There will be further changes in National Insurance from 6th April 2024:
Class 4 self-employed National Insurance cut by 1%, reducing from 9% to 8%
No one will be required to pay Class 2 self-employed National Insurance contributions. This means self-employed people with profits above £12,570 will no longer be required to pay Class 2 NIC but will continue to receive access to contributory benefits including the State Pension.
Those with profits between £6,725 and £12,570 will continue to have their contributions ‘treated as paid’ and get access to contributory benefits including the State Pension without paying Class 2 NIC as they do now.
Those with profits under £6,725 and others who pay Class 2 National Insurance contributions voluntarily to get access to contributory benefits including the State Pension will continue to do so.

An update on Fit Notes

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The government announced an update to the Fit Note or Med 3 form which was published on 6 October 2023.
The fit note should allow the employer and employee to discuss the employee’s health condition and consider ways to help them stay in, or return to, work on a phased or permanent basis.
Previous updates to the form included an extension to the healthcare professionals that could issue the form, in addition to doctors which included occupational therapists, pharmacists, and physiotherapists.
An updated version of the fit note replaced the signature in ink with the name and profession of the issuer, enabling the employee/employer to receive fit notes from GP practices through digital channels (where the local IT system support this).
The latest update to the fit notes will extend availability within secondary care settings (hospitals) from later this year. In the interim, employers may receive a pre-printed fit notes for employees discharged from hospital.
In the meantime, employers should be checking that the name of the issuer, the profession and the address of the medical practice correctly entered to make it a valid form. If you receive an old template (Med3 2017) it must be signed in ink by the healthcare professional.
The guidance, together with a checklist for employers can be found here

Are you ready to submit your P11Ds?

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If you’re an employer and provide expenses or benefits to employees, you must usually report them to HMRC so that tax and NICs are accounted for, unless they are subject to an exemption. It’s important you understand which exemptions apply and what needs reporting. We would recommend employers review the expenses and benefits they provide each year to establish the correct treatment and identify any changes.

Forms P11D and P11D(b) are forms employers must submit to HMRC annually to confirm the value of reportable benefits they have provided to employees. This is where the benefits are not covered by a formal payrolling arrangement with HMRC or aren’t dealt with under a pay as you earn settlement agreement (PSA). The P11D(b) form is the employer’s annual return of class 1A NICs due on those benefits. The P11D and P11D(b) deadline is 6th July following the tax year the benefits were provided in. A copy of each employee’s form P11D, or the information it contains, must also be provided to employees on this date. Any class 1A NIC payments (the employer’s NICs due on taxable benefits) are due 19th or 22nd July following the tax year, depending on how payment is made. For the 2022/23 tax year, class 1A NIC will be charged at a blended rate of 14.53% due to changes to NI rates part way through the tax year. HMRC no longer accept any paper forms P11D or P11D(b).

Currently, employers can choose to payroll certain benefits rather than report them on forms P11D. The only benefits that cannot be payrolled are living accommodation and beneficial loans. To payroll benefits, employers must formally register via HMRC’s portal before the start of the tax year they first want to payroll the benefit from. Once registered, the employer must then add the correct cash equivalent value of the payrolled benefit to employees’ taxable pay, and HMRC should then exclude the value of the benefit from the employees’ tax codes. The advantages of payroll benefits is it reduces the employer’s end of year P11D administration, plus it enables employees to pay tax in real time.

However, even if you are payrolling benefits now, you will still need to include the value of the payrolled benefits on a form P11D(b) by 6th July. This is to enable the class 1A NICs due on those benefits to be declared and paid to HMRC by 19th or 22nd July.

PSAs are used by employers to maintain compliance and reduce administration around taxable employee expenses and benefits they don’t want employees to personally pay tax and NICs on. By using a PSA, an employer can settle any tax due via an annual submission and payment to HMRC. PSA items do not then need to go through payroll or on a P11D. Rather than class 1A being due via the P11D(b), the value of the benefit is subject to class 1B NICS. To be included on a PSA, items must be minor, irregular in nature or impractable for the employer to operate PAYE on. Examples of PSA items are staff lunches, staff entertainment, non-cash awards, taxable travel costs for hybrid workers and trivial benefits over £50 such as Christmas gifts. You cannot include cash bonuses, company cars or low interest loans. A PSA must be applied for in writing. The deadline to have agreed a PSA with HMRC is 5th July following the tax year in which it relates.

Implications of an extra Bank Holiday

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Monday 8th May is an additional bank holiday this year due to the King’s coronation. Employers may have already had to manage the introduction of additional bank holidays last year due to the Queen’s platinum jubilee and another to mourn her death. You may need to review your contractual position on bank holidays to assess employer obligations in these situations.
Firstly, there is no statutory right to time off on bank holiday days, but entitlement is usually set out in the contract of employment.
Contracts which provide staff with 20 days’ holiday plus eight bank holidays won’t entitle staff to the additional day. However, if the contract doesn’t set out the specific days which are allocated as bank holidays, then the employee may choose to use part of their bank holiday entitlement to be off on Monday 8th May for the King’s coronation and work one of the other bank holiday days in the leave year. Similarly, should the contract entitle staff to ’28 days including bank holidays’ there will be no obligation to provide an extra day off, but employees may wish to book Monday 8th May as part of their available entitlement, subject to normal processes and approval.

Alternatively, contracts which state employees receive ’20 days annual leave plus bank holidays’ will be contractually entitled to the additional day off.

Reversal of recent mini-budget changes

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It’s in, it’s out…it’s on, it’s off! Trying to keep up with the latest government plans are making our heads spin at the moment. The newly appointed chancellor Jeremy Hunt has reversed almost all of the recent mini-budget commitments made by previous chancellor Kwasi Kwarteng last month, in a statement made at the Treasury today (17th October).

He confirmed that the basic rate of income tax will remain at 20% indefinitely until the economic situation stabilises, marking a U-turn from previous plans to lower the rate to 19%.

However, the National Insurance contribution rates due to be cut by 1.25% for employees, employers and the self-employed, effectively reversing the uplift introduced in April 2022 will still stand. This means the increased National Insurance rate of 1.25% for employees and employers that happened in April is being reversed with effect from 6th November. The ringfenced health and social care levy of 1.25% due to be introduced from April 2023 will also not go ahead.

The September mini-budget also announced a reversal of IR35 reforms for off-payroll workers but this will no longer be happening either.