United Kingdom Global Payroll & Tax Information Guide

Feb 8, 2018 | Country Payroll Guides

The United Kingdom is an attractive location for multinational expansion due to its strategic location, competitive tax rates, skilled workforce and ease of doing business. Our UK Payroll and Tax Guide provide multinational’s with the key points needed for business expansion. The UK, composed of England, Scotland, Wales and Northern Ireland, is one of the most globalised economies in the world. The economy within the United Kingdom is highly developed and market orientated. It is the sixth largest national economy in the world by Gross Domestic Product (GDP) and is the tenth largest goods exporter worldwide. The country was an active member of the European Union (EU) from 1973. In 2016 the UK voted ,in Brexit, to leave the European Union and is scheduled to depart from the EU on 29th March 2019. Key factors such as a diverse, growing country, low corporation tax (19%), skilled labour and strategic location make the UK an attractive location for business set up. In addition to this, according to the 2017 ‘World Bank Survey’, the UK is ranked 7th destination in the world for ‘Ease of doing business’. Detailed below are key points companies should consider when setting up in the United Kingdom from a Global Payroll perspective.  

WHAT’S NEW IN UK PAYROLL

  • Employee Statutory sick pay will increase from £89.35 to £92.05 from April 6th, 2018.
  • In 2018, all employers must provide a workplace pension scheme in which employees are automatically enrolled if they meet the following criteria:
    • Aged between 22 and State Pension Age.
    • Earn at least £10,000 per year.

BASIC FACTS ABOUT PAYROLL IN THE UK

In the UK, employers are obliged to deduct employee contributions from the employees’ gross wage and transfer tax deductions on a monthly basis to Her Majesty’s Revenue and Customs (HMRC). Employers in Scotland are subject to a tax band which differs from the rest if the UK. Other deductions employers must consider include PAYE, national insurance contributions (NICs), student loans and pension contributions. If payroll is run in-house, employee’s payments and deductions need to be reported to Her Majesty’s Revenue and Customs (HMRC) prior to payday. At the end of each tax year, it is necessary to conduct an annual report and report any expenses or benefits to the HMRC. The tax year in the UK runs from April 6th to April 5th the following year.  

INCOME TAX RATE CHARTS

  UK Tax Band (excluding Scotland)
Tax Band Taxable Income Tax Rate %
Personal Allowance Up to £11,500 0%
Basic Rate £11,501 to £45,000 20%
Higher Rate £45,001 to £150,000 40%
Additional Rate Over £150,000 45%
  Tax Band in Scotland
Tax Band Taxable Income Tax Rate %
Personal Allowance Up to £11,500 0%
Basic Rate £11,501 to £43,000 20%
Higher Rate £43,001 to £150,000 40%
Additional Rate Over £150,000 45%

NATIONAL INSURANCE CONTRIBUTIONS:

National Insurance Contributions or NICs are contributions to the HMRC which help fund the National Health Service, Statutory Leave Benefits, State Pensions and Workers’ Compensations. A UK’s employee’s National Contributions is deducted from the gross salary through Pay As You Earn (PAYE). These contributions are then transferred to Her Majesty’s Revenue & Customers (HMRC) on a monthly or yearly basis. National Insurance Contributions are paid if the employee is 16 years or over and earn above £157 per week. There are several classes of National Insurance Contributions (NICs). The type of payment made depends on how much an employee earns and if there are any gaps in the employees NIC record.  
National Insurance Class Class Explanation
Class 1 Employees earning over £157 per week and under State Pension Age
Class 1A or 1B Employers pay these directly on their employee’s expenses or benefits
Class 2 Self-employed citizens
Class 3 Voluntary Contributions – Payment on this are made to fill or avoid gaps in a citizens NIC
Class 4 Self-employed people earning a profit over £8,164 per annum

CLASSES OF NATIONAL INSURANCE CONTRIBUTIONS (NICS)

WORKPLACE PENSION:

Since January 2018, it is an obligation for employers to provide a Workplace Pension Scheme to eligible employee’s. Employers must automatically enroll employees into the scheme once they meet the following criteria:
  • Is aged between 22 and State Pension age.
  • Earns at least £10,000 per annum.
The amount paid by both employees and employer depends on a number of variables including, the type of pension scheme the employee is enrolled in and whether the employee has been enrolled automatically or voluntarily.

MINIMUM WAGE

National minimum wage varies depending on the employee’s age and if the position they are employed in is an apprenticeship. The wage rates below indicate the current National Minimum wage for employees of school leaving age and National Minimum wage as of 1st of April 2018.

MINIMUM WAGE RATES

Age Range Current Minimum Wage Per Hour Minimum Wage Rate from April 2018
Under 18 £4.05 £4.20
Apprentice under 18 £3.50 £3.70
18 to 20 years old £5.60 £5.90
21 to 24 years old £7.05 £7.38
Age 25 and over £7.50 £7.83

OVERTIME

There are no mandatory laws on overtime in the UK. Employees are only obliged to work overtime if a contractual agreement is made by the employee and employer.  

HOURS OF WORK

Working Time Regulations in the UK states that employees can’t work more than 48 hours per week on average. An exception to this rule is employees who are under 18 years of age. Employees within this age group can’t work for more than 40 hours per week or 8 hours per day. A working week in the UK is generally eight hours per day from Monday to Friday. The average working time is calculated over a 17-week period. Employees can choose to opt-out of the 48-hour week if they wish to do so.  

HOLIDAYS

Almost all employees working a 5-day week within the UK are entitled to 5.6 weeks or 28 days statutory annual leave per year. Employers can include bank holidays as part of the annual leave. Annual leave doesn’t automatically carry over from year to year unless noted in an employees’ contract. Holiday work for part-time employees, people working irregular hours such as shift work or term-time work is calculated on a pro-rata basis. Holiday entitlements can be calculated through the Gov.uk website.  

LEAVE

An employee expecting a baby in the UK is entitled to a total of 52 weeks Maternity Leave. This is made up of 26 weeks Ordinary Maternity leave and 26 weeks Additional Maternity Leave. If the employee doesn’t wish to take their full maternity leave entitlement, they are obliged to take 2 weeks leave after the birth of the baby. This is increased to four weeks if the employee works in a factory. If an employee wishes to change the date of return to work, employees must give employers at least eight weeks’ notice prior to the date of return. In terms of Statutory Maternity Pay, payments can be made up to 39 weeks of Maternity Leave. For the first 6 weeks, the employer is obliged to pay the employee at 90% of the average weekly earnings. The following 33 weeks, the employer is obliged to pay the lower of £145.18 or 90% of the employee’s average weekly earnings. In the case of Paternity Leave, employees can choose to take either 1 week or two consecutive weeks’ leave. Paternity Leave can’t start before the birth of the child and leave must finish within 56 days of the birth. Employees eligible for Paternity leave receive Statutory Paternity Pay equaling the lower amount of £140.98 or 90% of their average weekly wage. Deductions made from Statutory Maternity Pay and Paternity Pay include taxes and NIC.  

FOREIGN EMPLOYEES IN THE UK

 

VISA REQUIREMENTS

European Economic Area (EEA) nationals, with the exception of nationals from Bulgaria and Romania, don’t require a visa to work in the UK. Non-EEA nationals and nationals from Bulgaria and Romania are obliged to obtain a work visa applied for the employer on behalf of the potential employee.  

TAXES

All EEA employees who do not require a visa, are entitled to minimum wage and are obliged to pay income tax on their gross salary. EEA employees are not required to contribute to the National Insurance Contributions if the employee has a certificate in their possession that confirms payment of national insurance in their country of origin. Non-EEA employees are entitled to minimum wage and are obliged to pay income tax on their gross salary. In comparison to EEA employees, non-EEA employees are obliged to pay National Insurance Contributions. To learn more about payroll in the United Kingdom and for further information on Payslip’s international payroll services contact us today!  
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