Firms may not be able to alter payrolls in time after the NI tax cut, accountants warn

Accountants are warning that some companies won’t be able to change their payrolls in time for the national insurance (NI) change coming into effect in November.

The Government earlier this year decided to raise NI by 1.25 percentage points in April 2022 to fund health and social care, a move that was reversed on Thursday.

Accountancy firms are now warning that some companies will not be able to get their payrolls updated in time for the change, and some employees may need to be refunded at a later date.

John Chaplin, Employment Tax Partner at BDO, said: “The reduction in NI will be welcomed by employers and employees but maybe not so much by their payroll teams, as they represent the third change this year.

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“Some payroll providers might struggle to implement the changes in time and there is always the risk that errors arise in the rush to ensure that people have the reductions applied to their pay.

“Employers are advised to check their payrolls carefully to help avoid unintentional errors or delays.”

The Treasury clarified that most employees would receive a cut to their national insurance directly via payroll in their November pay but some may receive it in December or January, depending on the complexity of their employer’s payroll software.

Another accountancy firm added that it hopes the problems can be resolved by the end of the year so workers do not have to wait long before receiving their refunded amount.

Jonathan Berger, employment tax director at Grant Thornton, added: “Some systems can only accommodate updates periodically and others require an extensive testing timeline following development to accept a mid-year change.

“Where employees will effectively be underpaid due to the overdeduction of NICs from 6 November, the employer will need to adjust the NIs position in the payroll during a later pay period, as soon as the payroll system is able to do so.

“Let’s hope that payroll providers can do this before Christmas. Some employers may choose to offer short-term interest free loans to employees who are affected, taking advantage of a tax exemption often used for season tickets.”

Employees who are concerned about not being paid properly in time are being urged to check the situation with their employer.

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