End of year payroll routines

A summary of the main payroll routines to complete and the deadlines which need to be complied with

Basic year-end routines

  1. Your final FPS return for the tax year should be sent on or before the payment date of your employees. This will mean that you should have filed all of your FPS returns for 2015-16 by 5 April 2016
  2. Produce P60s for all employees. This summarises an employee's total pay and deductions for the year. You need to provide a form P60 (either paper or electronic) to each employee on the payroll who was working for you on the last day of the tax year (5 April). The employee must receive their P60 no later than 31 May 2016
  3. Update the payroll for 2016/17. This involves:
  • preparing a payroll record
  • identifying the correct tax code to use in the new tax year
  • entering their tax code in your payroll software.

Identifying the correct tax code for 2016/17

  • Employees without a new tax code: carry forward the authorised tax code from the 2015 to 2016 payroll record to the 2016 to 2017 payroll record. Authorised codes include BR, D0, D1 and NT. Then:
    • Add 40 to any tax code ending in L, for example 1060L becomes 1100L
    • Add 44 to any tax code ending in M
    • Add 36 to any tax code ending in N.

But if you have received a 2015 to 2016 tax code on a form P6 too late to use in 2015 to 2016 carry forward this code instead. Do not copy or carry over any ‘week 1’ or ‘month 1’ markings. The payroll records for these employees are now ready for the new tax year.

  • HMRC will send you a: P9T form for any employees who need a new tax code and/or
  • P9X form with general changes for employees whose tax code ends with an ‘L’.

The main deadlines

31 May 2016: You need to provide a form P60 (either paper or electronic) to each employee on the payroll who was working for you on the last day of the tax year (5 April). You must do this by no later than 31 May.

6 July 2016: P11D and P11d(b) should be sent by 6 July 2016 where applicable

22 July 2016: Last date for payment of class 1a NIC on expenses and benefits (19 July 2016 if payment is being made by post).

It is important to remember that HMRC will NOT accept FPS submissions for 2015-16 after 19 April 2016. If you attempt to file an FPS after this date your return will be rejected by HMRC. If you missed the 19 April deadline and need to submit pay information to HMRC for 2015-16 then you will need to do so via an 'Earlier Year Update (EYU), which must be submitted by downloading and installing HMRC Basic PAYE Tools software. 

Major changes to remember for 2016/2017

  • Tax code uplifts: HMRC has announced a general 'uplift' of all tax codes with an 'L' suffix by 40. This means for example that an employee with tax code 1060L in 2015-16 will have their tax code uplifted by 40 from 6 April 2016 to 1100L

  • Apprentices’ NIC: From 6 April 2016 employers with apprentices under 25 years old will no longer have to pay Class 1 secondary National Insurance contributions (NICs) on earnings up to the ‘Apprentice Upper Secondary Threshold’ (AUST) for those employees. The value of the AUST for the tax year 2016 to 2017 will be the same as the Upper Earnings Limit (UEL) which is £827/week, £3,583/month, £43,000/year. Note that this change affects the employer's NIC contribution only and does not reduce the amount of NIC that the employee pays

  • End of contracting out: Contracting-out of the additional State Pension will end on 5 April 2016. This means that from 6 April employees will automatically be brought back in to the state pension. If you have employees on the payroll that were previously contracted-out of the State Pension then they would have had their NIC calculated using NI table letters D, E, L, I or K in 2015-16. These NI letters are to be replaced by letters A, B, J, M and Z

For more information including how the end of contracting out affects pensions follow New State Pension.

  • Increase in Employment Allowance: From 6 April 2016 the Employment Allowance is increasing to £3000 from £2000 in 2015/16.

  • Changes to student loans: From 6 April 2016 there will be two student loan plan types which will be known as Plan 1 and Plan 2. Each plan will have a different threshold (£17,495 for Plan 1, £21,000 for Plan 2). When HMRC sends notification to the employer to start making student loan deductions (via an 'SL1 start notice') they will indicate which of the plan types to use. For more information on this follow Repaying your student loan.

  • Dispensing with dispensations: From 6 April 2016, a new exemption means you will no longer have to agree a dispensation with HMRC or report expenses or benefits in kind on form P11d where the employee is entitled to tax relief for those expenses or benefits in kind. However, the correct tax treatment of each item still needs to be established and records of payments still need to be kept

  • National living wage: From April 2016, if the employee is aged 25 or over and not in the first year of an apprenticeship, they will be legally entitled to at least £7.20 per hour 

  • Benefits in kind through payroll: From 6 April 2016 HMRC is introducing a voluntary framework to allow employers to include a notional value for employee BiKs as taxable pay into the regular payroll processing. This will have the effect of collecting any tax due in real time.