The end of contracting-out is getting ever closer, so now is a good time to ready yourself for the impact the change is going to have on the processing of your payroll.
You should already be in discussion with your software provider to see what help if any they will provide to you when changing NI contracted-out categories D, E, I, K, L, N, O and V to standard rate categories A, B, J, M, P, Q, R, T, Y and Z.
As we are already aware contracting-out of the additional State Pensions (S2P) via the defined benefit pension scheme ends on 5 April 2016, meaning that all employees will be automatically be brought back into the State Pension scheme as there will be nothing to contract-out of.
From 6 April 2016 National Insurance contributions rebates of 1.4% for employees and 3.4% for employers will cease, so you may want to appraise your employees of this change as for some it may be a shock.
With the introduction of the new Single Tier Pension there will be changes in what and how NI is reported to HMRC, so from 6 April 2016
Contracting-out will no longer be applicable, therefore Contracted-out Salary Related (COSR) occupational pension schemes will cease to be contracted-out and all contracted-out NI table letters should no longer be used. Employers Contracting-out Number (ECON) and Scheme Contracted-out Number (SCON) details on Full Payment Submission (FPS) will no longer be required for reporting purposes for the tax year commencing 6 April 2016 and onwards. Separation of the National Insurance (NI) earnings between the Primary Threshold (PT) and Upper Accrual Point (UAP) & UAP to Upper Earnings Limit (UEL) will no longer be required. Reporting NI earnings between the PT to UEL will be required as they were prior to 2009. Form P60 will have one column less, this will be updated in due course and will then be available on the Basic PAYE Tools or can be ordered from the Employer order line.The UAP data field will be removed from the FPS and Earlier Year Update (EYU), All HMRC systems will be amended to reflect these changes and all payroll software will need to be amended for the 2016/17 tax year onwards.
It is essential that you ensure all contracted-out NI categories are removed from your software prior to the 2016/17 tax year as it has been confirmed any FPS submissions with such categories will be rejected.
National Insurance Categories from 6 April 2016
Contracted-out National Insurance tables/categories D, E, I, K, L, N, O and V will be replaced by Standard National Insurance tables/categories A, B, J, M, P, Q, R, T, Y and Z.
Don’t forget the introduction of new NI table letters G and H for Apprentice under 25 from 6 April 2016.
Also, the NI table letters for Apprentices under 25 take precedence above the NI table letters for under 21s. Therefore an Apprentice aged 20 will be on table letter H and not table letter M.
National Insurance Categories from April 2015 for employees under age 21
Contracted-out National Insurance categories I, K and V will cease to operate at the end of the 2015-16 tax year for individuals who are aged under 21 and are in a contracted-out pension scheme.
Comment
Your software providers should have been updating their software in readiness for 6 April 2016, it is still worth a conversation with them to ensure they are at a state of readiness for you. Before you run your first live where possible run a test payroll to ensure there are no surprises enabling you to prevent an FPS rejection.
