An Accountant’s Guide to UK Payroll in 2023: Legislation, PAYE, and NIC Reforms

The UK business sector has changed rapidly over the past few years. In 2023, following the recession, high inflation, and the cost-of-living crisis, the industry once again witnessed substantial shifts. In the new tax year, businesses are in for numerous reforms in terms of finance, employment laws, legislation, and payroll.

Every business in the UK, no matter how big or small, is expected to remain compliant with all relevant regulations when it comes to payroll. But, with the constant changes to regulations, this may be challenging, giving a boost to the payroll outsourcing business.

Like each year, payroll legislation underwent several reforms in 2023. As an accountant managing payroll for a multitude of businesses, it is important to be aware of these changes and implement them effectively.

In this guide, we will address payroll in the digital business world and look at the most important changes to PAYE taxes, National Insurance contributions (NIC), and other key legislative reforms.

Payroll in a Tech-driven World

The advent of groundbreaking technologies, such as cloud computing, AI, machine learning, and robotics, caused a significant revolution in the business world. With scores of organisations joining the digital and technological brigade, payroll has changed dramatically. Unlike traditional times, many aspects of payroll are now completely digital, making it crucial for accounting firms to keep themselves updated and technologically efficient.

Taking note of the revolution, HMRC recently confirmed changes to the acceptable P11D submission, effective from April 6, 2023. According to the reform, HMRC would no longer accept the submission of paper P11D forms, although they may occasionally need to be submitted for relevant issues.

In response to the rapid technological advancements and their pivotal role in payroll management, many accounting firms seek external help from a payroll processing outsourcing firm.

Payroll and HR management are highly time-consuming, mundane, and error-prone tasks, making them ideal candidates for digitisation. Additionally, cloud and AI-based payroll are emerging as game-changers for the accounting industry. Thus, technology is the future of payroll and accounting, and their role is only expected to grow in the coming years.

PAYE Online

There are numerous PAYE forms, notices, and returns that can be sent and received online. As a part of operating PAYE, all employers (and accountants managing payroll for clients) must report their payroll information online to HMRC using a Full Payment Submission (FPS) for each pay period.

Forms and notices you can get online:

• P6: Employer coding notification
• P6(B): Employer coding notification (budget)
• P9: Annual coding notification
• SL1 & SL2: Student Loan Start and Stop Notice
• PGL1 & PGL2: Postgraduate Loan Start and Stop Notice
• P11D(b) notification
• Generic notification service

Forms and returns that can be sent online:

• FPS & EPS
• National Insurance number verification request
• P35: Employer annual return
• P38A: Employer supplementary return
• P14: End-of-year (EOY) summary
• P11D and P11D(b)
• P46 (Car): Notification of car made available for private use

If you rely on external help by outsourcing payroll in India, your outsourced team will handle all the forms, submissions, and returns.

Changes to Payroll in 2023/24

Stepping into the new tax year, the UK government introduced several payroll and tax regulation changes. While some areas see little or no change, some are more significant and must be noted.

In this section, we will look at some prominent areas with significant reforms critical to payroll.

Income Tax

The UK government introduced minor revisions to income tax allowances for England, Wales, Northern Ireland, and Scotland, except personal allowances.

Allowance Type	2022/23	2023/24
Personal Allowance	£12,570	£12,570
Married Couple Allowance	Maximum: £9,125 Minimum: £3,530	Maximum: £10,375 Minimum: £4,010
Transferrable Marriage Allowance	£1,260	£1,260
Income limit for Married Couple Allowance	£30,400	£31,400
Income limit (irrespective of date of birth)	£100,000	£100,000
Blind Persons’ Allowance	£2,600	£2,870

Income tax rates for England, Wales, and Northern Ireland

Category	Income	Percentage
Personal Allowance	Up to £12, 570	0%
Basic Rate	£12,571 to £50,270	20%
Higher Rate	£50,271 to £125,140	40%
Additional Rate	Above £125,140	45%

Income tax rates for Scotland

Category	Income	Percentage
Personal Allowance	Up to £12,570	0%
Starter Rate	£12,571 to £14,732	19%
Basic Rate	£14,733 to £25,688	20%
Intermediate Rate	£25,689 to £43,662	21%
Higher Rate	£43,663 to £125,140	42%
Top Rate	Above £125,140	47%

National Insurance

The National Insurance Contribution rates have remained unrevised since the last reform in November 2022. This applies to the whole of the UK. Whether you process your clients’ payroll in-house or work with a payroll processing outsourcing firm, this is an area that accountants won’t have to worry about tracking changes in the new tax year.

National Minimum Wage

The National Living Wage (NLW) is raised to £10.42 from April 1, 2023. This represents an increase of 9.7% from the previous rate.

Category	Previous rate (Apr ‘22 to Mar ‘23)	New rate from April 1, 2023
National Living Wage	£9.50	£10.42
21-22-year-old rate	£9.18	£10.18
18-20-year-old rate	£6.83	£7.49
16-17-year-old rate	£4.81	£5.28
Apprentice Rate	£4.81	£5.28
Accommodation Offset	£8.70	£9.10

Student Loan

The thresholds and rates for student and postgraduate loans are as follows:

	Previous rate (Apr ‘22 to Mar ‘23)	New rate from April 1, 2023
Plan 1	£20,195	£22,015
Plan 2	£27,295	£27,295
Plan 4	£25,375	£27,660
Postgraduate Loan	£21,000	£21,000

Statutory Payments

Category	Rates (Weekly)
Statutory Sick Pay	£109.40
Statutory Maternity Pay	First six weeks: 90% of employee average weekly earnings For the remaining weeks: £172.48 or 90% of the employee’s average weekly earnings, whichever is lower
Statutory Paternity Pay	£172.48 or 90% of the employee’s average weekly earnings, whichever is lower

Other Topics

• Employment Allowance is set at £5,000.
• The Apprenticeship Levy is charged 0.5% on an employer’s annual pay bill.
• The annual thresholds for workplace pensions remain unchanged.

Is Payroll Outsourcing a Good Idea for Accountants in 2023?

Each year, the UK government makes changes to important legislation causing an impact on payroll. These changes may be challenging to track and implement in each month’s payroll cycle. Moreover, accountants dealing with clients with a global presence are expected to be aware of the legislation of all the concerned countries, making payroll a further daunting task.

To counter these challenges, the payroll outsourcing business flourished rapidly in the UK over the past few years. In 2023, as the accounting industry rapidly progresses toward technological developments and automation, the role of outsourcing will be critical to note.

Our experts at QXAS, who have been at the forefront of the accounting revolution, advocate a collaborative tech and outsourcing approach to achieve the best results. Accountants must choose an outsourcing provider wisely that not only understands their staffing requirements but also their technological needs and provides solutions that align with their growth.

We, at QXAS, recognise the intricacies of payroll and provide tailor-made solutions to suit accounting firms’ needs. Our dedicated payroll specialists work on your preferred software and are well-versed in the latest legislation and compliance.

So, if you are looking for professional payroll support or want to scale your team, now is the time. Call us at +44 208 146 0808 or email us at [email protected] to speak to an outsourcing advisor and hire experienced payroll experts for your team.