By Michelle Rowe, Senior Accountant at Hive Business
Spring has finally sprung! And as we are now halfway through April (already!), we have now welcomed a new tax year.
The 6th of April this year has brought a number of changes to the world of payroll so we thought we would take this opportunity to share some of the highlights.
Tax-Efficient Directors salary
The tax and national insurance thresholds are amended each April. As you will already be aware, if you are director trading within a limited company, it’s generally beneficial for you to draw a salary that is at a level where it does not attract tax or national insurance.
The personal allowance for tax this year is £988 per month, and the threshold for national insurance is £702 per month. Therefore a tax-efficient directors salary of £700 per month is a sweet spot.
If we run your payroll, we will assess your individual circumstances with you and amend your salary as necessary. Specific details will follow with your April 2018 payslip.
If you run your own payroll scheme, we suggest you consider your salary with effect from April 2018 onwards.
Workplace Pension Contributions
Another big change that has come into force this April is the increase in the minimum contributions to your employee’s workplace pension scheme. Employees are now required to contribute 3% of their earnings into the scheme, with employers required to contribute a further 2%.
Normally, with the increase in tax and national insurance thresholds, most employees tend to see a small increase in their take-home pay each year. Unfortunately, that won’t be true this year because of these increased pension contributions. For someone on minimum wage, they will see their net pay drop by around £5 per month. Whereas, higher-earners could lose as much as £46 per month.
And of course, the cost to you as employers will double with the employer’s contribution going up to 2%.
We should warn you that the minimum contribution rates are increasing again this time next year – 5% employee contribution and 3% employer contribution.
National Minimum Wage
An employee who is 25 years or older is now entitled to £7.83 per hour. Further details regarding the different age-dependent rates can be found on the gov.uk website. You should review and revise your staff’s pay accordingly.
The rate of standard maternity, adoption, paternity, parental pay has increased to £145.18 per week. And the rate of statutory sick pay has increased to £92.05 per week. For further details regarding the statutory pay, please refer to my earlier blog on the subject.
If you’d like to find out more about these changes or our payroll services in general, please call us on 01872 300232 or email us at [email protected].