Payroll Updates

Payroll Changes taking effect from 6 April 2017.  You can also download all of the below information

Payroll Update March 2017 (PDF)


National Living Wage

The National Living Wage (NLW) for workers aged 25 and over will increase from £7.20 to £7.50 per hour.


National Minimum Wage

The National Minimum Wage (NMW) is a legal right which covers almost all workers above school leaving age, with different rates applying to different groups of workers. The following new NMW rates also come into effect from 6 April 2017:

  • Rates for 21-24 year olds will increase to £7.05 per hour
  • Rates for 18-20 year olds will increase to £5.60 per hour
  • Rates for 16-17 year olds will increase to £4.05 per hour
  • Apprentice rate will increase to £3.50 per hour*

*Applies to apprentices aged 16-18 and those age 19 or over (in their first year of apprenticeship).

Apprentices over 19 who’ve completed their first year are entitled to minimum wage for their age.

The increase in NMW may come as a surprise to some employers, as the last increase in NMW was only in October 2016. However, the Government has announced that they will align both NLW and NMW rate changes to reduce the administrative and financial burden on employers. As a result, the increase in NLW and NMW is for the next 12 months and the rates will be reviewed annually in April.

HMRC is responsible for enforcing the above rates (NMW and NLW) and may arrange to view records at any time to ensure the correct rates are being paid to employees. Failure or wilful neglect to pay the correct amount could result in fines being charged or even criminal prosecutions. It is a criminal offence for employers not to pay someone the correct amount or to falsify records.


Apprenticeship Levy

As an employer, you will pay the new Apprenticeship Levy (‘Levy’) on a monthly basis from 6 April 2017 if you:

  • have an annual ‘Pay Bill’ more than £3 million
  • are connected to other companies or charities which in total have an annual Pay Bill more than £3 million

Your annual ‘Pay Bill’ is calculated based on all payments to employees that are subject to employer Class 1 secondary NICs, e.g. wages, bonuses and commissions, although certain exclusions apply. The Levy is charged at a rate of 0.5% of your annual Pay Bill. Each employer receives an annual allowance of £15,000 (connected companies only have one allowance of £15,000 to share between them), which covers employers with a Pay Bill more than £3 million. The Levy is an annual charge, however employers must report and pay the Levy on a monthly basis as part of their standard PAYE procedures, starting in May 2017.


Tax Free Childcare Scheme

A new tax free childcare scheme is expected to be introduced in 2017 (subject to Parliamentary process) which should see families with each parent working and earning at least £115 per week (but less than £100,000 per year) become entitled to receive 20% off childcare costs. Expected savings are up to £2,000 per child; £4,000 if the child is disabled. The existing ‘Employer Supported Childcare’ scheme remains open for new entrants until April 2018.


Off Payroll Working in the Public Sector

  • From April 2017, there are changes to the way the current legislation (known as IR35) is applied to off-payroll working in the public sector. Where the rules apply, people who work in the public sector through an intermediary will pay employment taxes in the same way as employees.
  • Public-sector bodies will be responsible for the employment status of all workers engaged through intermediaries and personal service companies (PSCs), which includes those provided via an agency.
  • Where the worker would have been regarded as an employee under IR35, the public-sector body or the agency will be required to treat payments made to intermediaries or PSCs as if they were earnings paid to the worker from an employment with the public body.
  • The public-sector body or the agency will be required to account for PAYE and National Insurance (both employee and employer) to HMRC on the deemed employment payments made to the PSC.
  • New rates and allowances from 6 April 2017

National Insurance – Class 1 (employed) rates

EmployeeEarnings per week % EmployerEarnings per week %
Up to £157 Nil* Up to £157 Nil*
£157 – £866 12 Over £157 13.8
Over £866 2    

*Entitlement to contribution-based benefits retained for earnings between £113 and £157 per week.

National Insurance – Employees under 21

For all employees under the age of 21, the rates below apply.

Employee under 21Earnings per week % EmployerEarnings per week %
Up to £157 Nil Up to £157 Nil
£157 – £866 12 £157 – £866 Nil
Over £866 2 Over £866 13.8

National Insurance – Apprentices under 25

For all Apprentices under the age of 25 who are working towards a Government approved apprenticeship, the rates below apply.

Employee under 25Earnings per week % EmployerEarnings per week %
Up to £157 Nil Up to £157 Nil
£157 – £866 12 £157 – £866 Nil
Over £866 2 Over £866 13.8

Changes due to take effect from 6 April 2018


Termination Payments

During 2017, the Government will look to clarify the tax treatment of termination payments. This will include making all contractual and non-contractual payments in lieu of notice taxable as earnings and requiring employers to tax the equivalent of an employee’s basic pay if notice is not worked. Legislation will also be introduced to align the tax and employer NICs treatment of termination payments so that employer NICs will be payable on the elements of the termination payment exceeding £30,000 on which Income Tax is due. The first £30,000 of a termination payment will remain exempt from Income Tax and NICs.


If you need more help or advice regarding any payroll matters please contact our Payroll team at payroll@ktsowensthomas.com or ring 029 2082 9000.

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