As a result of COVID-19 and the introduction of furlough, payroll has become highly stressful for businesses across the UK.
However, the Payroll year-end is rapidly approaching, and businesses must prepare for the forthcoming issues.
You should do a few things to ensure a smooth payroll year-end, but the most important is that you report to HMRC on the prior tax year – and the deadline is 19 April.
To assist you, we’ve compiled a list of everything you need to know about Payroll UK year-end 2021, so you can complete the process as quickly and efficiently as possible.
Table of Content
The important facts
Key dates
Key responsibilities
As a payroll operator, you must be able to:
- Report on the previous tax year to HM Revenue and Customs (HMRC), ending on 5 April.
- Give each of your employees a P60 form.
- Get ready for the new tax year, which begins on 6 April.
What you need to know about legislative changes
1) EYU to FPS from a previous tax year
Starting in April 2021, the Earlier Year Update (EYU) will no longer be a viable submission to make adjustments to the tax year ending 5 April 2021.
You must submit changes to current and future tax year’s via Full Payment Submissions (FPS).
EYU only – Amendments to tax years ending on or before 5 April 2018 (EYU or FPS) – From 20 April 2019, amendments to the tax year ending 5 April 2019.
FPS or EYU – From 20 April 2020, amendments to the tax year ending 5 April 2020.
FPS only – Amendments to the tax year ending 5 April 2021, and subsequent years are beginning 20 April 2021.
2) Off-payroll working (IR35)
Off-payroll working, also known as IR35, was scheduled to begin in April 2020 but was postponed owing to COVID-19. It is expected to bring significant changes.
Individuals providing services to an organisation through an intermediary are currently paid in full and are liable for paying any applicable tax and National Insurance (NI) due to their circumstances.
However, beginning in 2021, adjustments will ensure that those hired on this basis pay nearly the same amount of tax and NI. In the end, this legislative amendment means that contractors must now be treated similarly to regular employees.
They will, however, require a marker to indicate that they are off-payroll to be exempt from other pay/deductions such as Auto Enrolment.
It’s worth noting that IR35 will only apply to medium and large firms; read our blog to learn more about how the government classifies this.
3) CIS reverse charge VAT
The construction industry VAT Domestic Reverse Charge (DRC) applies within the construction sector, whereby the customer accounts for the supplier’s output VAT.
When a VAT-registered business receives a supply of specified services from another VAT registered company on or after 1 March 2021, it accounts for that VAT amount in its VAT return rather than paying the VAT to its supplier.
Suppliers will also need to produce a VAT invoice indicating the reverse charge applies to the supplies.
This new law will only apply to individuals or businesses that are VAT registered in the United Kingdom, and it will not affect consumers.
4) National living wage increase
To maintain employees’ living standards, National Living Wage (NLW) and National Minimum Wage (NMW) rates increased in April 2021.
According to the government’s website, the new salary boost ranges from 1.5 per cent to 3.6 per cent, depending on your age group.
Another noticeable change is that the maximum age for receiving the top rate is now 23, instead of 25 previously.
5) Employer’s NIC holiday for veterans
Before the 2019 General Election, the Conservative Party pledged to help ex-service members find work.
This idea will be realised beginning in 2021/2022 when employers of veterans in their first year of civilian duty will take advantage of a National Insurance contribution holiday.
Claims will be processed at the end of the tax year rather than in real-time via RTI.
Things to do after the payroll year
1. Prepare your P60s
By 31 May, all employees who worked till the last day of the tax year, 5 April, must have received a P60. This vital document summarises their pay and deductions for the year.
You may generate P60s using your payroll software and securely distribute them with your employees online. There’s also the option to print them if necessary.
2. Determine when your payroll finishes
Is your payroll ending on week 52, or do you have a week 53 to consider (assuming the pay date falls on 5 April 2021)? Are you unsure?
You won’t have a week 53 if your employees are paid monthly, so you can continue processing payroll as usual.
You don’t have a week 53 if some (or all) of your employees are paid weekly, fortnightly, or four times a week, and your regular pay date doesn’t fall on 5 April.
If your regular payment date falls on 5 April due to those weekly, fortnightly, or four weekly installments, you do have a week 53.
In this instance, all you have to do is finish your payroll for 5 April as usual before processing your year-end.
3. Keep an eye out for departing employees
Have any of your workers left the company? If this is the case, you must process them as leavers.
Before submitting your Full Payment Submission (FPS) and Employer Payment Summary, make sure you do this (EPS).
4. Send your year’s final FPS
So, you’ve determined whether you have a week 53, handled the tax year’s last payroll, and made the necessary leavers for your staff. You can now deliver your final FPS and, if necessary, EPS files.
You would process your final pay period and submit your last FPS as part of the preparation, but only for that pay period.
You will submit your year-end paperwork online. It has a deadline of 19 April.
In the final pay period, there is no difference between the FPS and the EPS. After you’ve submitted them as usual, you can move on to the payroll year-end procedure.
5. Complete your year-end paperwork
Ensure to check your processing date in your payroll software; it should be set for 5 April. You can now complete your year-end work and submit your final tax return for the 2020/21 tax year.
After you’ve completed this step, you may start making your P60s. Remember that your employees must receive them by 31 May.
That’s it; you’ve completed the year-end payroll process for another year. Take a five-minute break, and then be ready to begin processing payroll for the new tax year.
Payroll year-end 2021: Make sure you’re prepared
You should do many other tasks to get ready for Payroll Year End 2021, like setting up a government gateway account and planning for week 53.
You’ll also need to be prepared for several adjustments to your employer’s allowance and tax due to the budget postponement. It’s critical to know your payroll number. It’s the number given to you by your employer’s payroll department to identify you as a separate employee.
Check the payroll number regularly. It’s critical to know your payroll number. It’s the number given to you by your employer’s payroll department to identify you as a separate employee.
If you think this is too much, then consider outsourcing payroll.
Winding-up
The end of the year is a hectic and critical period for payroll professionals, with unprecedented obstacles for 2020 year-end processing due to Covid-19. Tax calculations, evaluation of compensation and expense records, and confirming compliance with income-withholding laws are all part of the annual reconciliation.
Employers must endeavor to minimize costly errors as they close up the current year and prepare for the new year, given the complexity of year-end processing. You may complete your processing with a bit of forethought before beginning your preparations for the new tax year.
