Make sure you’re prepared for the payroll year end


Michael McAllister

Michael McAllister

Director & Head of Payroll Services


With the payroll year end fast approaching, employers in the UK have a number of areas to consider ahead of April 2021 to ensure they are up to date and in line with current - and changing - legislation.

Having a detailed and structured year-end project plan that lists specific tasks and the task owners is very important, as it ensures all necessary activities are carried out and provides accountability.

The 2021/22 rates and thresholds for employers can be found here, and below we have covered some of the key areas you should be thinking about as we move into April 2021.

Key Dates

A few important dates to bear in mind are:

  • 22 April 2021 – this is the deadline for paying your month 12 PAYE liabilities to HM Revenue & Customs.
  • 31 May 2021 – this is the deadline for P60 distribution to all staff employed as at 05/04/21.

Salary – Sole Directors

The most tax efficient director’s salary for 2021/22 is £8,840 per annum. This level of pay is above the Lower Earnings Limited, so the taxpayer qualifies for the state pension, but below the National Insurance Primary and Secondary thresholds, so no employee or employer National Insurance contributions are due.

National Minimum Wage (NMW) and National Living Wage

From 1 April 2021 there will be an increase in the NMW. We have outlined the new 2021 hourly rates below.

Age Year

23 and over

21-22 years old

18-20 years old

Under 18

Apprentice

April 2021

£8.91

£8.36

£6.56

£4.62

£4.30

Employers should also be aware of an important change coming into play which may entail additional compliance and costs – the National Living Wage will apply to employees aged 23 or over from 1 April 2021, not just those aged 25 or over.

Statutory Payments (Family Related)

Statutory family payments such as maternity, paternity, shared parental, adoption and parental bereavement pay will increase to £151.97 per week from 4 April 2021. This represents a minimal increase from the previous tax year’s weekly payment threshold of £151.20.

Employers will continue to recover statutory costs at either 92% or 103%. This is assessed based on annual NI charge, currently set at £45,000 per annum.

Statutory Sick Pay

The rate of statutory sick pay will increase to £96.35 per week from 4 April 2021, rising from £95.85.

Automatic Enrolment

An employee is automatically enrolled into a workplace pension scheme if their earnings are above the “trigger”, or threshold. The earnings trigger for the 2021/22 tax year remains at £10,000. The Lower Earnings Limit will also remain unchanged, at £6,240, while the Upper Earnings Limit will rise to £50,270.

Student Loans

The Department of Education has announced the new student loan thresholds that will apply from 6 April 2021. A new Student Loan type, Plan 4, will come into effect from 6 April 2021 for students who have taken out a loan in Scotland.

  • Plan 1 will increase from the current threshold of £19,390 to £19,895. 
  • Plan 2 will increase from the current threshold of £26,575 to £27,295. 
  • Plan 4 will be set at £25,000 for year one, 2021/22.
  • Postgraduate loans will not change and remain at the current threshold of £21,000. 

For plans 1, 2 and 4, deductions over the earnings threshold will be calculated at 9%. For postgraduate loans, deductions over the threshold will be calculated at 6%.

Real Time Information

The Earlier Year Update (EYU) is being withdrawn from April 2021 and all prior period adjustments must be filed via the FPS (Full Payment Submission).

Employment Allowance

If you are a payroll client of Johnston Carmichael, your payroll adviser will be in touch with you regarding this. For the avoidance of doubt, the £4,000 allowance continues to be available to employers who meet the qualifying criteria. Details can be found here.

Income Tax & National Insurance Thresholds

The Chancellor’s Budget on 3 March 2021 confirmed his election manifesto’s commitment not to increase income tax and national insurance rates. We’ve covered the detail on our Budget Hub here.

IR35

Changes to the current IR35 rules are coming into effect from 6 April 2021. The impact of the new rules means that many businesses could be liable for additional tax, so it is vital that businesses fully understand how these changes will affect them and that those with new statutory responsibilities have taken the appropriate steps to be compliant when the law comes into force. Essentially, IR35 is anti-tax-avoidance legislation to ensure that contractors working like an employee are taxed like any other employee, regardless of the existence of any intermediary in the arrangements with the “end-client”. Read our top tips on contractor assessments here, and if you have any queries on the new legislation, get in touch with our Employer Services team. 

Get in touch

There are several areas for employers to make sure they are aware of and compliant in as we approach the new tax year. As always, if you have any queries, please don’t hesitate to get in touch with me, your payroll adviser or your usual Johnston Carmichael contact.