UK payroll year-end made easy: Steps to success

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Written by Tom Negal, Xero Customer Experience Specialist – Payroll and Carolyn Haughton, Xero Customer Experience Specialist – Payroll

What a year it’s been! From furlough to flexi furlough, running out of toilet paper and working in our pyjamas. It’s been a tough year all round, but with Xero Payroll, the year-end process couldn’t be easier.

We have blog posts, support articles, webinars and our wonderful payroll specialists on hand 24/7 to ensure you have all the support you need. It is our aim to make sure the transition into the new tax year is as seamless as ever. Here you will find all the steps required to be a year-end pro.

Opening balances

If you transferred to Xero after the first pay run of the tax year, you’ll need to review the opening balances. The opening balances are the year to date figures that were processed in your previous payroll software. We would recommend reviewing the following balances to make sure the information has been entered correctly before the final submission is sent to the HMRC.

Organisation Opening Balances
Employee Opening Balances

If for any reason these are not correct, please get in touch with our payroll support team who will be able to assist.

Reconciling

In addition to reconciling payroll throughout the year, an end-of-year reconciliation is also recommended. This can be done using the payroll reports in Xero, such as the Gross to Net, P32 and Account Transactions reports, against an employee’s earnings and deductions for the tax year.

If any mistakes have been made throughout the year, it’s important to rectify these before completing the year-end return.

Final pay run

The next step is to process the final pay run for the tax year. At this point, the P11 reports can be reviewed whilst the pay run is in draft format, which you can check for any final timesheets, holiday payments or corrections to ensure employee P60s are accurate and up to date.

Xero will determine the final pay run using the payment date. This date needs to be between 6th March and 5th April to trigger the final pay run indicator in the Employer Payment Summary (EPS).

If there are no employees to be paid in the final tax period, then a nil pay run can be processed. This can be done by unticking all employees when the pay run is processed to draft and then posted.

Not only is 5th April 2021 the last day of the tax year but it’s also Easter Monday which is a public holiday, so if you pay your employees on the 5th of each month you may want to factor this holiday into your payment planning.

The final pay run will need to be posted by 19th April to trigger the EPS to be sent between the 12th and 19th of the month in time for the deadline. Once the final pay run has been posted any tax code uplifts and roll overs will take place and the year-end reports will be produced

To help make your lives easier, you don’t need to close off payroll years in Xero because we’ll handle this automatically for you after the 19th April. Xero will include pay runs with a payment date of 6th April onwards in the new tax year using the updated rates and thresholds.

Review P11 and P60 reports

Next up, after the final submission has been completed, the P11 and P60 reports can be reviewed. The P11 reports are available to you throughout the year and the P60 reports are made available at the end of the tax year.

You can even share employee P60s from Xero and we will notify your employee by email when their P60 is available in My Payroll.

You’ll need to give a P60 to all employees who are on your payroll and working for you on the 5th April by 31st May.

If you need make any corrections, it’s important that these are completed by 19 April so they’re included in your RTI filings for year-end.

Prepare for the new tax year

Our final step is to prepare for the new tax year by reviewing and updating payroll in Xero to meet any changes made to regulations.

Employment Allowance – If eligible, indicate this is being claimed before you process your first pay run of the tax year.
National Insurance – Review director National Insurance methods and employee’s National Insurance categories, keeping an eye out for any deferment certificates.
Tax codes – Review employee tax codes. Xero automatically updates tax information for the new year. This includes:
- Increasing tax codes ending in L, M and N.
- Resetting any previous W1/M1 calculation methods to cumulative for the new tax year.
- Carrying over all other authorised tax codes for you to review.

For any Scottish employees repaying student loans, you’ll be able to update their employee records to reflect the new plan 4 as soon as you receive the start notices from HMRC for the new tax year.

Benefits – If you offer benefits in kind and would like to payroll them, you need to register with HMRC before the start of the tax year. The benefits can then be added in Xero and assigned to the employees ready for the year ahead. For any existing benefits in kind you’re processing through payroll, review the benefit value and availability dates for the new tax year. Make a note of 6th July to complete and submit your P11D(b) for any employer class 1A national insurance due.

National Living Wage/National Minimum Wage – These are due to increase from the start of the new tax year. Review employee’s salaries and wages in their Employment tab. Find out more here. Hiring contractors to help your business progress further this tax year, check if they fall within IR35 regulations and use our new Off-payroll worker type to process their services and manage the relevant tax and NI due.

Review pension contribution rates – There is no increase due to pension contribution percentages this financial year for automatic enrolment. However, we recommend reviewing these percentages for employees before processing your first pay run of the year. Prepare for the new tax year by reviewing and updating payroll in Xero to meet any changes made to regulations.