What do new fiscal measures mean for your payroll?

It has also created significant market turmoil, resulting in the new Chancellor of The Exchequer Jeremy Hunt revising many if the mini-Budget announcements by his predecessor and bringing forward several measures from the Medium-Term Fiscal Plan. That said, the cuts to National Insurance (and SDLT) are set to remain.

There is no doubt that software providers are spending their time updating software and issuing patches to take account of the in-year changes.

There are additional costs for software providers to implement these changes, which they may seek to pass on to their customer base.

HMRC has advised businesses/employers to get their payroll software systems updated to reflect this change in time for the November pay cycle, to ensure employees do not end up making higher than necessary National Insurance Contributions.

Employers already know their workforce will be watching keenly to see what real difference this change makes.

Employers who, while acting as an unpaid tax collector for HMRC via the PAYE system, also know if the changes are not applied correctly, it is the employer who will be penalised.

The reversal of the April 2022 1.25 per cent increase in National Insurance will take place from 6th November. The government estimates that this will save individuals £330 on average for 2022/2023 and £135 for the rest of this tax year.

It is important point to note that no refund of National Insurance Contribution payments will occur in relation to prior earnings.

Any National Insurance Contributions paid on earnings up to 5th November (tax month 7th October) will remain at the increased higher rate as the Treasury will not have to hand these back to employers.

In April 2023, the full reversal of the 2022 increase will take place, reducing the 1.25 per cent employee and employer NI increases - which were to be rebranded as the Health and Social Care Levy (HSCL).

For many employers who were perhaps ahead of the curve with budget forecasts for 2023/24 they will now need to be revised and thankfully downward in terms of the employer National Insurance Contribution rate/cost.

In addition to the u-turn on the abolition of the 45% rate of income tax, the new Chancellor has also revised the announcement to cut basic rate income tax to 19 per cent from April 2023. While the government aims to proceed with the cut in due course, this will now only take place when economic conditions allow for it and a change is affordable.

The basic rate of income tax will therefore remain at 20% indefinitely. This is estimated to be worth around £6 billion a year to the Exchequer.

Scotland and Wales both have devolved tax powers (SRIT & WRIT) and may choose to vary or match the core rates applicable to England and NI.

While Scotland is currently the only one of the home countries that has varied the rates and bands and significantly already have a 19 per cent band, this change to the basic rate may create room for the Welsh Senedd to join Scotland and strike a WRIT. 

No change to tax bands or the personal allowance has yet been mentioned, meaning we will have to wait to hear of any changes.

Employers must ensure they are ready for the November software change and if they haven’t heard from their software provider, should ring them now and enquire when the new patch will be available to download and apply.