In today's Autumn statement, the Chancellor has announced a number of measures which affect employers. There were few surprises since much of what has been announced today was already mentioned in the Chancellor's budget statement in March.
The key announcements affecting employers are as follows;
- The national living wage (applying to workers
aged 25+) will increase at the rate of 4.2% from £7.20 to
£7.50 in April 2017; the national minimum wage will also
increase in April 2017 as follows:
- 21 to 24 year olds from £6.95 to £7.05 per hour
- 18 to 20 year olds from £5.55 to £5.60 per hour
- 16 to 17 year olds from £4.00 to £4.05 per hour
- apprentices from £3.40 to £3.50 per hour
- Income tax and national insurance
- Personal allowance will rise to £11,500 in 2017 and £12,500 by 2020; higher rate threshold will rise to £45,000 in 2017 and £50,000 by 2020;
- NICs – secondary (employer) and primary (employee) thresholds will be aligned from April 2017 so both employees and employers will start paying NI on weekly earnings above £157; class 2 NICs will be abolished from April 2018 (simplifying NI for the self-employed);
- Off-payroll working rules in the public sector will be reformed, following consultation, from April 2017;
- Termination payments – as announced at Budget 2016, from April 2018 termination payments over £30,000, which are subject to income tax, will also be subject to employer NICs. Following a technical consultation, tax will only be applied to the equivalent of an employee's basic pay if their notice is not worked, making it simpler to apply the new rules. The government will monitor this change and address any further manipulation. The first £30,000 of a termination payment will remain exempt from income tax and National Insurance;
Clyde & Co comment - it is good to see that the government has dropped its controversial proposal that certain post-employment and "expected bonus" payments will be taxed as earnings (rather than being taxed as a termination payment). This would have increased the cost of making a termination payment as well as causing some confusion as to what is and is not taxable as earnings. We welcome the retention of the £30,000 relief on termination payments (announced in August this year) and although after April 2018, large termination payments will cost more because of the additional NIC liability, this will not impact the majority of termination payments since most fall below the £30,000 limit.
- Taxation of different forms of remuneration -
as the tax system treats different forms of remuneration
inconsistently, the government wants to make the system fairer
between workers carrying out the same work under different
arrangements. The government will take the following action -
- Salary sacrifice – following consultation, the tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultra-low emission cars. This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021
Clyde & Co comment - Employers will welcome the news that low emission cars as well as pensions, child care and cycle to work arrangements will remain exempt. However, employers who offer flexible benefits packages should now review their current benefit arrangements to decide whether they are still cost effective. Benefits such as gym membership, mobile phones and health checks will no longer qualify for relief. Note though, that salary sacrifice arrangements form part of an employee's contract of employment so an employer's flexibility as to whether certain benefits can be withdrawn or changed will depend on any contractual promises made.
- Valuation of benefits in kind – the government will consider how benefits in kind are valued for tax purposes, publishing a consultation on employer-provided living accommodation and a call for evidence on the valuation of all other benefits in kind at Budget 2017
- Employee business expenses – the government will publish a call for evidence at Budget 2017 on the use of the income tax relief for employees' business expenses, including those that are not reimbursed by their employer
- Employee Shareholder Status (ESS) – the tax advantages linked to shares awarded under ESS will be abolished for arrangements entered into on, or after, 1 December 2016. The status itself will be closed to new arrangements at the next legislative opportunity. This is in response to evidence suggesting that the status is primarily being used for tax planning instead of supporting a more flexible workforce.
Clyde & co comment - employee shareholder status was introduced in 2013 but has been used infrequently. The idea was to give employees a chance to own shares in their company in return for them giving up some employment protections such as unfair dismissal and redundancy. The shares are subject to certain income tax and CGT reliefs and it seems that the arrangements have been used mainly for tax planning purposes. These tax reliefs will still be available for shareholders under arrangements entered into before 1 December 2016 but the status will be abolished altogether for new users at some time in the near future.
- Tax avoidance (Disguised remuneration schemes) – the Budget 2016 announced changes to tackle use of disguised remuneration schemes by employers and employees. The government will now extend the scope of these changes to tackle the use of disguised remuneration avoidance schemes by the self-employed. This will ensure that self-employed users of these schemes pay their fair share of tax and National Insurance. Further, the government will take steps to make it less attractive for employers to use disguised remuneration avoidance schemes, by denying tax relief for an employer's contributions to disguised remuneration schemes unless tax and National Insurance are paid within a specified period.
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