Payroll updates for 2021/22 Tax Year

National Minimum Wage Rates

In line with the new annual increase, HMRC has announced changes to the minimum wage. One major change is the lowering of the age bracket to qualify for the top rate from 25 to 23 years old. Effective from April 2021, the National Minimum Wage (NMW) rates will be as per the figures below:

  • Workers aged 23 years or more: £8.91 per hour.
  • Workers aged 21 to 22 years: £8.36 per hour.
  • Workers aged 18 to 20 years: £6.56 per hour.
  • Workers aged under 18 (but above compulsory school age): £4.62 per hour.
  • Apprentices aged 19 and over, but in the first year of apprenticeship: £4.30.

Apprentices aged 19 or over who have completed one year of their apprenticeship are entitled to receive the national minimum wage rate applicable to their age.

Employer Allowance

There will be no changes to the £4,000 employer allowance for 2021/22 tax year. Employers who qualify can still register to receive the allowance via an EPS claim through their payroll software. Employers with a Class 1 secondary National Insurance liability of £100,000 or more are no longer eligible.

Directors Salary and Dividends

If you are a sole Director, the most efficient salary for you to take is £736.66 a month This is because:

  • It’s at the secondary threshold so your company won’t need to pay employer’s NI on it.
  • This salary is lower than the primary threshold, so you won’t need to pay employee’s NI.
  • It’s above the Lower Earnings Limit, so you will still earn NI credits, which is great news for your state pension.
  • This is less than the tax-free Personal Allowance threshold.
  • A sole director cannot claim Employment Allowance.

The most efficient Salary for two or more directors is £797.33 a month, this is because you can now claim employers’ allowance, meaning any employers NI you are charged is reimbursed.

 Weekly NI Threshold 2021/22Monthly NI Threshold 2021/22Annual NI Threshold 2021/22
Lower Earnings Limit (LEL):  Employees earning less than this limit won’t incur NI, but also won’t accrue NI benefits, such as qualifying payments towards their State Pension.£120£520£6,240
Primary Threshold: This is the point at which employees start paying NI. Earning below this, but above the Lower Earnings Limit still doesn’t incur NI, but employees will earn NI ‘credits’, and accrue NI benefits.£184£797.33£9,568
Secondary Threshold: Employers pay NICs at a rate of 13.8% on salary payments above this threshold.£170£736.66£8,840

Qualifying for the State Pension

Taking a salary which is higher than the Lower Earnings Limit (LEL) (£6,240 per year, in 2021/22) allows directors to build up qualifying years for their State Pension.

If your salary is above the LEL but below the Primary Threshold then you will accrue all the benefits of NI, without actually paying it. This will affect how much State Pension you are entitled to once you pass state retirement age.

Staff Benefits:

Cycle to Work Scheme

Staff can still claim even if they only work from home for part of the week, but you cannot claim tax relief if you choose to work from home.

In December 2020 HMRC announced that employees who joined a company cycle to work scheme on or before 20 December 2020, can now benefit from time limited easement due to the change in their working conditions. Prior to this the tax exemption for cycles & equipment was applicable if the purchase was made predominantly for journeys to & from work. With many employees now working from home this caveat has been suspended. The rule will be re-applied from 5 April 2022. Those employees who joined a scheme on or after 20 December 2020, are exempt from the rule.

Tax Relief Working from Home

If you require your employees to work from home due to the coronavirus pandemic, they are eligible to claim back money, through tax relief, if they have increased costs.

If they have been working from home because of the Covid-19 pandemic, then they may be eligible to some extra
funding to help cover the costs.

The payment can be made via the payroll with no tax or national insurance payable; however, this is then a cost to the business. If the employee claims direct from HMRC, there will be an adjustment to their tax code.

How Much Can They Claim

They can either claim tax relief at:

• £6 a week from 6 April 2020 (for previous tax years the rate is £4 a week) – They will not need to keep evidence of their extra costs.
• The exact amount of extra costs you’ve incurred above the weekly amount – you’ll need evidence such as receipts, bills or contracts.

They will get tax relief based on the rate at which they pay tax. For example, if they pay the 20% basic rate of tax and claim tax relief on £6 a week, they will get £1.20 per week in tax relief (20% of £6).

Mileage allowances 2021

Type of vehicle10,000 miles10,000+ miles
Cars and vans45p25p

P11D and Payrolling Benefits

At the end of the tax year you’ll usually need to submit a P11D form to HM Revenue and Customs (HMRC) for each employee you’ve provided with expenses or benefits.

You will also need to submit a P11D(b) form if:

  • you’ve submitted any P11D forms
  • you’ve paid employees’ expenses or benefits through your payroll
  • HMRC have asked you to – either by sending you a form or an email

Your P11D(b) tells HMRC how much Class 1A National Insurance you need to pay on all the expenses and benefits you’ve provided.

If HMRC have asked you to submit a P11D(b), you can tell them you do not owe Class 1A National Insurance by completing a declaration.

Paying tax on benefits through your payroll

You can deduct and pay tax on most employee expenses through your payroll (sometimes called ‘payrolling’) as long as you’ve registered with HMRC before the start of the tax year (6 April).
You do not need to submit a P11D form for an employee if you’re paying tax on all their benefits through your payroll.

You’ll still need to submit a P11D(b) form so you can pay any Class 1A National Insurance you owe.
What to report

Each expense or benefit is calculated differently. Find the type of expense or benefit you’ve provided to see what you’ll need to report and pay.

For ‘minor’ expenses or benefits, you might be able to make a one-off payment, known as a PAYE Settlement Agreement.

This is something we will manage on your behalf, but you must let us know by 5th April the very latest if you would like to pay benefit tax through payrolling. Applications cannot be made after this date.

Benefits of outsourcing your payroll

  • We offer a fast and efficient process.
  • Your staff will have access to their own online portal where they can view their wage slips, request holiday leave and access their annual P60’s.
  • No more manually calculating holiday entitlement, we will do that for you.
  • You will receive a payroll approval request at each pay run which is easily accepted at the press of a button.
  • Auto Enrolment kept up to date every 3 years
  • Pension submissions done in a timely manor
  • HMRC and Pension payments can be set up on your behalf