PAYROLL - 28.02.2020

2020/21 payroll changes

Late Budget concerns. With the Autumn 2019 Budget being postponed until 11 March 2020, financial controllers and payroll software developers were very worried that they wouldn’t have time to implement the 2020/21 payroll changes. So, it was a huge relief when, on 31 January 2020, the government announced the 2020/21 NI thresholds - there are no changes to the NI table letters or percentages.

Employees’ NI. As promised in the Conservatives’ manifesto, the 2020/21 primary Class 1 NI threshold has been increased to £9,500 per year which works out as £183 per week or £792 per month. The upper NI threshold is frozen at £50,000 per year.

Employers’ NI. Disappointingly, the secondary Class 1 NI threshold will not continue to be aligned with the employees’ NI threshold, so employers will start paying NI sooner at £8,788 per year - £169 per month or £732 per year. As mentioned in a previous article ( yr.12, iss.5, pg.1 , see The next step ), the employment allowance, which can be offset against the employers’ NI bill, will be restricted to employers with an employers’ NI bill below £100,000 in the previous tax year.

Optimum director shareholder salaries. If the directors in your company are also shareholders and receive remuneration in the form of a minimum salary and dividends, then what’s their optimum salary in 2020/21? Assuming: (1) they don’t have an employment contract so the national minimum wage doesn’t apply; (2) you either don’t qualify or have already fully utilised the employment allowance with other staff; and (3) they have not yet accrued maximum entitlement to the state pension, then the sweet-spot is to go up to the employees’ NI threshold but no higher. For 2020/21, this would be a monthly gross salary of £792. There will be some employers’ NI to pay (£792 - £732 x 13.8% x 12 = £99) but this will be offset by the extra corporation tax saving at 19%.

For our previous article on the employment allowance changes, visit http://tipsandadvice-financialcontroller.co.uk/download (FC 12.06.01).