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United Kingdom: Preparing in Advance for Reporting Obligations at the 2022-2023 Tax Year-End

published on 24 February 2023 | reading time approx. 5 minutes

The end of the UK tax year is fast approaching. With a multitude of changes from April 2023 and in a uniquely pressurised business environment, this period may command more diligence and preparation than usual.

Annual Payroll Reporting Tasks for UK Employers »
Issuing P60 Forms to Employees »
Employment Benefit Tax Year-End Submissions »
Preparing for a New Payroll Tax-Year »
How to Ensure Tax Year Payroll Transitions Run to Plan »

All businesses that employ staff through the HMRC PAYE system are required to submit various reports, including final annual payroll reports, updates to records, and potentially adapt their payroll processing software for compliance.

Deadlines often appear to be some way off, but ensuring you have the correct systems in place to produce, verify and issue P60s and benefit-related documents will ensure your tax year-end runs smoothly.

Annual Payroll Reporting Tasks for UK Employers

Final Full Payment Submission reports (FPS) are due to HMRC on, or before, the last payday of the 2022-23 tax year, which ends as always on 5th April. The cut-off date for submissions is your final pay period, and you should ensure that all details are covered, including:

Gross pay calculations
Income tax deductions
National Insurance contributions made

Errors can be costly since your FPS is the basis of any assessments that determine values owed by your organisation to HMRC.

Where additional values are not included in your FPS, you must submit an Employer Payment Summary (EPS). These values can impact payment obligations owing to the tax office and should be reported.

Inclusions may comprise compensation and recovery values related to statutory payments, apprenticeship levies, and CIS deductions, depending on your sector and payroll structure.

Any EPS declarations must be submitted by 19th April 2023 latest.

Issuing P60 Forms to Employees

P60 forms are formal documents that validate the total earned, received, and paid in tax deductions and social security contributions throughout the previous tax year.

Employees may require these forms for personal financing and credit applications, to enable them to calculate self-assessment tax return figures, or for other record-keeping purposes.

Businesses have until 31st May 2023 to circulate individualised P60s, but where you can produce forms earlier, it may benefit employees.

Employers are obligated to produce P60s and ensure they reach each staff member as a fundamental element of payroll management. For example, a P60 will evidence:

Statutory pay
Student loan repayments made
Gross earnings over the tax year
Total taxes paid

Any member of staff who has worked for your organisation as an employee from 5th April 2022 should receive a P60, and in some cases, colleagues who have since left employment will need to be issued their paperwork.

Employment Benefit Tax Year-End Submissions

Businesses may compensate staff for their service in varied ways, with pay packages potentially including the use of company cars and mobiles or other technological equipment, low or zero-interest loans, use of fuel in a business-owned vehicle, and mileage allowances.

Any benefit in kind, in lieu or in addition to financial compensation, must be declared a taxable benefit. For example, if your organisation provides a company car and permits personal use outside of working hours or allows employees to utilise a vehicle at any time without making contributions toward fuel for non-employment use, they are receiving a taxable benefit.

Many such forms of remuneration are not payrolled or incompatible with payroll systems, so the P11D and P11D(b) system allows you to submit compliant reporting to HMRC.

There are several aspects of those reporting processes to be mindful of:

Employers will bear liability for Class 1A National Insurance contributions owing on benefits in kind passed to employees outside of the auto-deduction payroll system.
Penalties for non-submission or late submission can be high, and non-awareness is not a reasonable justification.
Employers' National Insurance obligations owing to HMRC must be paid by 22nd July 2023.

Penalties amount to £100 per 50 employees, per month or partial month your P11D(b) is late, plus interest and penalties calculated against amounts owing to HMRC. A copy of the P11D should be provided to the employee, whereas the P11D(b) is the document that summarises the non-payroll benefits and the NICs owed by the employer.

Preparing for a New Payroll Tax-Year

When your FPS and EPS are submitted, all P60s have been prepared and issued, and P11D and P11D(b) calculations are up to date; you also need to consider the new tax year ahead and the adjustments required.

Payroll professionals often approach the closure of one tax year, and the commencement of the next, as one process, referring to the P9X to update tax codes employers use, as dictated by HMRC to ensure that they are deducting the correct tax values from each employee's payslip.

Tax code changes can occur for a broad range of reasons. Still, government reports are the primary information source for payroll clerks, even where unexpected tax code changes raise a query from the employee.

Other tasks involved checking threshold changes, which can apply to:

Income tax thresholds and bands
Student loan and postgraduate loan repayment requirements
Adjustments to additional elements, such as childcare vouchers

Reviewing payroll records before the first payment run of the new tax year is strongly advisable to avoid clerical errors and mistakes that can be meaningful to employees, where deductions are too low or high or do not reflect updates to the tax regime.

April 2023 brings more payroll updates than most tax years, following a flurry of political budget activity and announcements, decision reversals and policy changes – it is the responsibility of the business operating the payroll to remain up to speed.

Changes to National Living Wage and National Minimum Wage

From 1st April, all businesses must comply with higher rates associated with National Living Wage (NLW) and National Minimum Wage (NMW), which have increased to:

£10.42 per hour for employees 23 and above
£10.18 per hour for staff between ages 21 and 22
£749 per hour for staff from 18 to 20
£5.28 per hour for employees aged under 18 and apprentices

Uplifts in NLW and most NMW rates equate to a 9.7 percent increase on the previous year, with the most significant increases for 21 and 22-year-olds, whose wages will increase 10.7 percent if they are on the legal minimums.

Additional Rate Tax Bands

The highest 45 percent income tax band threshold drops from £150,000 to £125,140 from the start of the new tax year, impacting higher income earners and directors' pay where remuneration is split between dividends and salary.

Statutory Payments

From 6th April, SSP minimum pay bands will increase by 10.1 percent from the 2022-23 tax year to a rate of £109.40 per week, effective immediately.

Parental payments will also rise, with adjustments to Statutory Paternity Pay, Parental Bereavement Pay, Maternity Pay and Shared Parental Leave. Each category of statutory pay increases to £172.48 per week from £156.66 per week in the last tax year.

Dividend Allowance Deductions

Dividends may be paid and recorded outside of the payroll system, but the changes to tax-free dividend allowances could be impactful. Directors and shareholders enrolled in dividend compensation schemes will be taxed on all income from £1,000, as opposed to £2,000 and above.

How to Ensure Tax Year Payroll Transitions Run to Plan

As with any financial process, the key is to ensure you have a clear checklist of the tasks, calculations and submissions required, the relevant deadlines, and the administrative work necessary to meet them in good time. Ahead of the Spring Budget, scheduled for 15th March 2023, there remains the potential for further adjustments affecting UK payroll providers.

Still, in the interim, prudent planning and a keen awareness of declaration deadlines is essential to avoid falling foul of penalties, interest charges and other fines.