The new financial year often brings about a raft of changes that will impact upon how you process payroll and pensions. Here, we cover a few key things you should be aware of ahead of April 2019:
Pensions contributions increasing
The minimum pensions contributions will increase again in April 2019, for both employees and employers. The increases are as follows:
|Employer minimum contribution*||Employee minimum contribution*||Total minimum contribution*|
|6 April 2018 – 5 April 2019||2%||3%||5%|
|6 April 2019 onwards||3%||5%||8%|
*minimums are based on a banded qualifying earnings scheme. Different rates apply for schemes where a different earnings basis is used.
As an employer, you can choose to pay the full amount of the total minimum contribution, leaving staff with nothing to pay at all, unless the scheme’s rules say that they have to make contributions. Employees can also choose to contribute more than the minimum amount if they want to.
If you choose to pay in more than their legal minimum contribution, but less than the total minimum contribution, then staff must pay in at least enough to make up the shortfall.
When it comes to ensuring you are appropriately prepared, there a few things you should consider:
- Can your workplace pension scheme and payroll software support the contribution increases by 6 April 2019?
- If the answer to the above is no, then your chosen scheme may no longer qualify under AE. Have you thought about alternative schemes/software?
- How will you communicate the pension contributions increases to your staff?
If you’re unsure about how to meet your obligations or you’re concerned about the upcoming changes, we would urge you to seek professional advice at the earliest opportunity.
A change to the Tax-free Personal Allowance
From 6 April, the tax-free Personal Allowance (the threshold used to calculate how much income tax needs to be paid) will increase from £11,850 to £12,500. The threshold for paying higher rate tax has increased from £46,350 to £50,000.
State pension on the rise
The state pension is due to increase by 2.6 per cent in April 2019, meaning that the basic state pension will be £129.20, and the flat-rate state pension will rise to £168.20.
Expected to affect up to 13 million pensioners, those who are entitled to the full new single-tier state pension could see their income rise by approximately £221 a year. Those who receive the basic state pension could find themselves roughly £169 better off at the end of the 2019/20 tax year.
The state pension is protected by the ‘triple lock’ guarantee, meaning that it rises each year in line with the greater of annual price inflation, average earnings growth or a guaranteed 2.5 per cent minimum.
Since September’s 2018 inflation figure was 2.4 per cent and average earnings were 2.6 per cent, the government is expected to use average earnings to increase the state pension from 6 April 2019.
A (slightly) more generous Pensions Lifetime Allowance
The Pensions Lifetime Allowance (LTA) will rise from £1,030,000 to £1,055,000 in line with the Consumer Price Index (CPI).
While this may not apply to you at present, it’s worth bearing in mind that pensions are a long-term commitment and you may find yourself edging towards or even exceeding the LTA by the time you wish to take your benefits. At this point, it may be necessary to act to avoid exceeding the limit.
Here at George Hay, we work with you to tailor our payroll services to the needs of your business. So, if now seems like the perfect time to make your payroll needs a priority, don’t hesitate to get in touch with our team today.