The Chancellor delivered his Autumn Statement to Parliament on 3rd December which sets out the payroll changes for the tax year ahead.
So here at PayStream we are now starting to think about how those changes will affect your contractors.
With effect from 6th April 2015, all employees will benefit from increased thresholds for PAYE and National Insurance meaning more of your hard earned wages will end up in your back pocket.
So, how much of an increase will you see?
Pay As You Earn (PAYE) tax codes
The basic tax code will be increasing from 1000Lto 1060L.
Put simply, this means that you can earn an additional £600.00 per year before you need to pay PAYE. This equates to £204.00 per week that will class as tax free deductions.
The basic tax rate will remain at 20% on annual earnings above the tax threshold, and up to the amount of £31,785, a reduction of £80 on 2014-15.
The higher tax rate will remain at 40% on annual earnings from £31,786 up to £150,000.
The additional tax rate is at 45% on annual earnings above £150,000.
Other PAYE changes
HMRC has also introduced a 'coding out' system which means they are increasing the maximum amount that can be recovered through a PAYE tax code for those whose earnings are greater than £30,000. There is no change to the £3,000 limit for those whose earnings are less than £30,000.
HMRC are introducing a 'legislative 50% overriding limit'. This will safe guard any employees who find themselves in the unfortunate position of owing tax back to HMRC. HMRC will now only be able to recover up to a maximum of 50% of an employee's relevant pay as previously they could take the full amount due.
On a more positive note, in 2013 the Chancellor announced that with effect from 6th April 2015 where neither spouse is liable to income tax above the basic rate, individuals will be able to apply to transfer part of their tax free personal allowance to their spouse /civil. For the tax year 2015-16 £1060, is the transferable amount.
This could save you an additional £212 in tax.
The National Insurance thresholds for the new financial year 2015-16 are as follows;
- The lower earnings limit will be £112 pw, an increase of £1 on 2014-15
- The primary threshold for employees will be £155 pw, an increase of £2
- The secondary threshold for employers is now £156 pw, an increase of £3
- The upper accrual point remains the same at £770 pw
- The upper earning limit is now £815 pw, an increase of £10.
Earnings over the primary threshold will be subject to 12% employee NIC deduction and if individual's earnings exceed the upper earnings limit the additional rate of primary class 1 deduction will be at 2% employee deduction. This is the same as the previous year.
The statutory payments including Statutory Maternity Pay (SMP), Ordinary Statutory Paternity Pay (OSPP) and Statutory Adoption Pay (SAP) have all increased by £1.40 from £138.18 to £139.58 per week for those who qualify.
Statutory Sick Pay has increased by £0.90 from £87.55 to £88.45 per week for the 2015-16 financial year.
Student loan recovery
The Department for Business, Innovation and Skills have confirmed that with effect from 6th April 2015 the student loan threshold will rise by 2.5% to £17335 per year. Earnings over £333.37 per week will be subject to a 9% student loan recovery. This is an increase of £8.17 per week on the 2014-15 threshold. For more information please click here.
The government has recently opened registration for the new Marriage Allowance, a tax break for married couples, helping them save up to £212 a year. Applying online, the government say, is straightforward. Couples can register their interest to receive the Allowance now. From 6 April 2015, more than 4 million married couples and 15,000 civil partnerships will be eligible for the tax break. The Allowance means a spouse or civil partner who doesn't pay tax, or doesn't pay tax above the basic rate of income tax, can transfer up to £1,060 of their personal tax-free allowance to a spouse or civil partner - as long as the recipient of the transfer doesn't pay more than the basic rate of income tax. Please see here for more information.