How the Spring Budget has changed your payroll requirements

How the Spring Budget has changed your payroll requirements

On 8 March 2024, the Chancellor of the Exchequer, Jeremy Hunt, changed the way businesses pay their employees through a National Insurance Contribution (NIC) reduction.

As a result, business owners and their payroll departments need to now look at the way they pay their employees, deduct tax at source (through PAYE) and maintain compliance.

What changes did the Government make to NICs?

Fundamentally, Jeremy Hunt reduced the NICs of employed people from 10 per cent to eight per cent which is on top of the other two per cent reduction he made in the Autumn Statement and that came into effect in January this year.

The theory behind this is that “employees on an average salary will receive an extra £450 in their pay packet.”

(Although economists and analysts argue that in reality, with the current Income Tax freezes, employees will be paying more in the long run).

The most direct impact of reducing employees’ NICs by a further two per cent is an overall increase in their net pay and this is something your payroll and HR departments will need to account for after the changes come into force on 6 April.

Updating your payroll processing and making adjustments

To implement a two per cent reduction in employees’ NIC rates, payroll departments or will need to undertake several technical steps.

Firstly, they must update the NIC rate tables within their payroll software to reflect the new reduced rates.

This involves adjusting the thresholds for different NIC bands or categories to ensure that deductions are accurate for each employee’s earnings level.

You should conduct thorough testing of your payroll systems after making these updates to verify that the new rates are applied correctly across various scenarios, such as part-time and full-time employees, those on different contracts, and across different pay scales.

Ensuring the payroll system accurately calculates the reduced NICs is essential to maintain compliance and prevent discrepancies that could lead to under or overpayments.

Beyond the immediate software adjustments, you might also need to update your payroll policies and communicate these changes to your employees, explaining the impact on their net pay and answering any queries they may have.

Compliance considerations

For businesses, adhering to the new NICs requirements is not just about correctly paying their employees, it’s also about maintaining compliance with the changing regulations.

To do this, you will need to ensure that your payroll records are highly accurate, noting both the current contributions and the altered contributions after 6 April. This will be essential for your tax reporting and compliance in the eyes of HM Revenue & Customs (HMRC).

You may also need to train your payroll department and HR on the changes, explaining what they mean and how to communicate them with your employees.

If your payroll systems fail to accurately deduct NICs (or do so in an untimely manner) you may find yourself in hot water and be required to pay penalties or fines.

Similarly, record-keeping discrepancies can lead to poor audit results or even inspections by HMRC.

The easiest way to avoid these things, and remain compliant with HMRC, is to outsource your payroll to a qualified and experienced payroll specialist who is knowledgeable about the changes to NICs and understands how to adapt your payroll quickly.

At Moore Thompson, we’ve already been getting our clients ready for the changes and ensuring they stay compliant.

Please reach out to our team if you’re worried about meeting NICs compliance or you think your payroll department needs help managing the changes.