Anthony Wolny
6 minutes length
Posted: 8th January 2021

Your guide to Payroll Year End 2021

managing payroll year end 2021

We understand that for businesses across the UK, payroll has already been immensely stressful in recent months due to COVID-19 and the introduction of furlough.

But Payroll Year End is now right around the corner, so businesses need to prepare themselves for even more upcoming complications.

To support, we’ve gathered everything you need to know regarding Payroll Year End 2021, making sure you can get through the process as quickly and efficiently as possible.

The essential facts

Key dates:

  • On or before your employees’ payday: Send your final FPS payroll report of the year
  • From 6th April: Update employee payroll records
  • From 6th April: Ensure your payroll software is updated
  • By 31st May: Give your current employees a P60
  • By 6th July: Report employee expenses and benefits if they aren’t being processed through payroll
  • By 22nd July: Pay Class 1A NIC on P11D benefits

Key duties:

As an employer running payroll, you need to:

  • Report to HM Revenue and Customs (HMRC) on the previous tax year (which ends on 5th April)
  • Give your employees a P60
  • Prepare for the new tax year, which starts on 6th April

Claiming small employer relief

If you newly qualify as a small employer, you should be able to reclaim some or all statutory maternity pay, statutory paternity pay, statutory adoption pay and shared parental pay that you’re obliged to pay.

The criteria to be classed as a small employer in 2020 was to be a business with a liability for National Insurance Contributions that was less than £45,000 in the last tax year.

However, due to the budget delay, the limit for this year is yet to be confirmed, although many expect it to be a similar value.

Check out our Payroll Year End training in which we’ll be covering all the current processes and yet to be announced changes that small businesses need to consider.

Legislative changes: what you need to know

1) EYU to Previous year FPS: correcting mistakes in a previous tax year

From April 2021, the Earlier Year Update (EYU) will not be a valid submission to make amendments to the tax year ending 5th April 2021.

Any amendments to this and future tax years will need to be made using Full Payment Submissions (FPS).

  • EYU only – Amendments to tax years ending 5th April 2018 and earlier
  • EYU or FPS – Amendments to the tax year ending 5th April 2019 from 20th April 2019
  • EYU or FPS – Amendments to the Tax Year ending 5th April 2020 from 20th April 2020
  • FPS only – Amendments to the Tax year ending 5th April 2021 and future years from April 2021

2) Off-payroll working (IR35)

Originally due to come into play in April 2020 but as a result of COVID-19 it was delayed, off-payroll working better known as IR35 is set to create some major changes.

At the moment, individuals who provide services to an organisation through an intermediary are paid in full and are responsible for paying the required tax and National Insurance (NI) based on circumstances.

But changes in 2021 will ensure that individuals employed on this basis are paid at roughly the same level of tax and NI.

Ultimately, this legislative change means that contractors now need to be processed like a normal employee.

However, they will require a marker to say that they’re off-payroll to ensure that they are excluded from other pay/deductions such as Auto Enrolment.

It’s worth noting that IR35 will only apply to medium and large businesses – to see how the Government classifies this, read our blog here.

3) CIS reverse charge VAT

Where a VAT-registered business receives a supply of specified services from another VAT-registered business on or after 1st March 2021, it accounts for that VAT amount through its VAT return instead of paying the VAT amount to its supplier.

VAT-registered businesses will be able to reclaim the VAT amount as input tax, subject to the normal rules.

Also, suppliers will need to issue a VAT invoice that indicates the supplies are subject to the reverse charge.

This new rule will only apply to individuals or businesses registered for VAT in the UK, and it won’t impact consumers.

4) Student loan Plan type 04 -Scotland

From 6th April 2021, any Plan type 04 Scottish borrower repayments must be calculated at 9% of earnings above the £25,000 threshold.

This will be for new and existing borrowers, and the repayment period is also reduced to 30 years from 35 in line with England and Wales.

5) National living wage increase

From April 2021, the Government will increase the National Living Wage (NLW) and National Minimum Wage (NMW) rates to protect workers’ living standards.

The new wage increase varies from 1.5% to 3.6% depending on the age group, which you can find here on the Government’s website.

Additionally, another notable change is that the age to receive the top rate is now being dropped from 25 to 23.

6) Employer’s NIC holiday for veterans

Prior to the 2019 General Election, the Conservative Party made a manifesto commitment to support former service personnel into employment.

From 2021/2022, this initiative will be fulfilled through the introduction of a National Insurance contribution holiday for employers of veterans in their first year of civilian service.

Claims will be at the end of the tax year, and they won’t be catered for in real-time via RTI.

7) Starter checklist

A starter checklist should be used to gather information about your new employees, helping you fill in your first Full Payment Submission (FPS).

Due to the new Plan 4 student loans, that section will now also be altered to reflect the changes.

Payroll Year End 2021: make sure you’re prepared

There’s a whole list of additional things you should do to prepare for Payroll Year End 2021 such as ensuring you’re registered with the Government Gateway and preparing for week 53.

Additionally, due to the budget delay, you’ll also need to be ready for a variety of changes to employer’s allowance and tax.

But don’t worry we’re here to help, using our vast amount of payroll experience, we’ve created a variety of training packs that will help manage not only the typical Year End processes but also all the new legislative changes.

Training for businesses with under 250 employees  

Check out our Payroll Year End training that’s tailored to SMEs which includes:

  • Payroll Year End processes
  • Payroll Year End requirements
  • New COVID-19 Year End processes
  • Latest legislation updates (2021-2022)
  • And much more

See our SME training packs here

Training for businesses with over 250 employees

Or for those larger organisations, check out our enterprise training packs that include:

  • Dedicated time with a consultant
  • Legislation webinar
  • Product webinar
  • Year End installation guides
  • Video recordings
  • And much more

See our enterprise training packs here

Outsource your responsibility instead  

Alternatively, starting at £5 per payslip, you could outsource your entire payroll responsibility, including Payroll Year End to our IRIS Fully Managed Payroll service.

Boasting over 40 years of experience, our team of CIPP-accredited payroll managers are on hand to support you with your payroll.

For more information on our outsourcing service and to request a quote, click here.