National living wage, new apprentice NI rates, and employment allowance

 Payroll changes April 2016

National Living Wage

From 1 April 2016, the government introduced a new mandatory national living wage (NLW) for workers aged 25 and above, initially set at £7.20 – a rise of 50p relative to the current National Minimum Wage (NMW) rate.

That’s a £910 per annum increase in earnings for a full-time worker on the current NMW.

The adult NMW rate is currently £6.70. This will continue to apply for those aged 21 to 24.

Apprentices’ NI

Since the 5th April 2016 there has been a new National Insurance rate available for apprentices under 25. If you employ an apprentice under the age of 25, you may no longer have to pay employer Class 1 National Insurance contributions on their earnings up to the new Apprentice Upper Secondary Threshold.

The rate of Class 1 secondary NICs for certain apprentices under age 25 will be zero up to the new ‘Apprentice Upper Secondary Threshold’ (AUST) which, for the tax year starting 6 April 2016, will be the same as the Upper Earnings Limit (UEL). Class 1 secondary NICs will however continue to be payable on all earnings above this threshold. The basic rules and calculations of National Insurance including how Class 1 NICs are assessed will not be changed.

The Apprentice Upper Secondary Threshold (AUST) is different to the Upper Secondary Threshold (UST) which applies to employees under age 21; although it is set at the same amount for tax year starting 6 April 2016.

From 6 April 2016 two new category letters will be introduced to use when assessing Class 1 NICs for qualifying apprentices who are under the age of 25. The definition of a qualifying apprentice for this purpose will be available later in the year. These are:

  • H – Standard rate contributions for Apprentices under age 25.
  • G – Standard rate contributions for Apprentice Mariners under age 25.

Detailed guidance on using the new apprentices NI rates are available here

Employment Allowance

Employers can reduce the amount of National Insurance contributions (NICs) they pay for employees by up to £3,000. This is called the ‘Employment Allowance’ and means that employers don’t have to pay any employer National Insurance contributions at all if their annual contribution is less than £3,000 a.

HMRC provide an on-line calculator to help employers assess the effect this allowance can have on their total contributions.

You can claim through your payroll software – including for a previous tax year, dating back to 2014 to 2015. Employment Allowance was £2,000 before 6 April 2016.

Detailed guidance from HMRC on the new Employment Allowance for single director companies can be found on their web site.

If you have any questions on the changes above, or would like to explore how to outsource your payroll, contact your nearest Burgis & Bullock office on 0845 177 5500 or using our on-line contact form 

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