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Payroll impactions over tax year end date changes revealed

The CIPP’s policy lead has highlighted the various challenges payroll professionals should be aware of.

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The Office of Tax Simplification’s (OTS) call to review the tax year end date could see the original date change from 5 April to either 31 March or 31 December, which could prove a headache for payroll professionals.

 

The existing tax year has been in place for centuries with legislation and guidance built to reflect 5 April, meaning a change of this magnitude could be tricky to overcome.

 

However, Samantha Johnson, policy lead at The Chartered Institute of Payroll Professionals (CIPP), has shared that planning is key to this potential change. In order to help payroll professionals prepare, she has delved into the key points and challenges they should be aware of.

 

Payroll schedules

While the deadline for the full payment summary would not need to be changed if the tax year end date changed, payments for PAYE would be liable to being brought forward if the tax month was to end in line with the calendar month. According to Johnson, this could create further implications for the employer summary deadline and “ultimately, create significant changes in payroll schedules across the UK”.

 

She said: “I’m certain that the preference from payroll will be to retain existing deadlines to prevent unpicking complex and well-established internal processes.”

 

Thresholds

With this potential change, the transitional year would need to set out pro-rated entitlement to standard annual thresholds, such as the personal allowance, employment allowance and apprentice levy allowance.

 

In addition, national insurance is calculated on an annual basis for directors, which means it will need further consideration. Johnson shared that the transition year would also include a shorter month “therefore, those monthly national insurance thresholds may need to be adjusted to reflect that reduced period,” she said.

 

Statutory payments

The new tax year is linked to changes in statutory payments, which increase annually. It is therefore expected that there would continue to be alignment between the increases and the new tax year. With this in mind, while a change to 31 March would have little impact, a change to 31 December would be a different story altogether.

 

Johnson explained: “Statutory increases not being aligned to the start of the tax year would not be a desirable consequence of this change.”

 

Gender pay gap

The date for gender pay gap reporting in the public sector is set for 5 April, the same date as the existing tax year. Therefore, a change to this date would affect the date of the reporting.

 

What happens next?

Johnson shared that the OTS has set out a plan to review the tax year end date, but noted that if the preferred date is 31 December, “the size of the impact will be greater”.

 

“Overall, the success of this change will absolutely depend on good preparation – as the old saying goes, fail to prepare, prepare to fail,” she concluded.

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