How will today’s Autumn Statement affect employment?
The Chancellor’s Autumn Statement earlier today included a number of significant announcements in the areas of employment and employment taxation.
Use of salary sacrifice for benefits in kind
The Chancellor announced that from April 2017 employers and employees who use benefits in kind schemes will pay the same tax as everyone else, with exceptions including for childcare and cycling. The published Autumn Statement confirms that employer pension contributions and employer-provided pension advice will be unaffected by these tax changes, alongside childcare, the Cycle to Work scheme and ultra-low emission cars.
The sorts of salary sacrifice arrangements targeted by these tax changes are their use for private health insurance and health screening and for the acquisition of personal computers, mobile phones and vehicles.
This announcement follows the Government’s consultation in the summer about restricting the use of salary sacrifice for the provision of benefits in kind. The growing use of salary sacrifice to provide employee benefits is seen to represent an increasing cost to the Treasury, and the tax changes are forecast to increase tax revenues by £235 million from 2018-19 onwards. The current use of salary sacrifice is also viewed as creating an uneven playing field between employers and employees who use these schemes and enjoy their tax advantages, and those that do not.
The earlier consultation said that salary exchanged for intangible benefits such as additional holiday entitlement would also be unaffected, and also that Payroll Giving would be unchanged other than in the application of NI contributions. It remains to be seen what impact the tax changes will have in these areas.
The Statement indicates that there will be some transitional provisions covering existing salary sacrifice arrangements which continue beyond April 2017, extending their protection from tax liability until April 2018 and in the case of arrangements for cars, accommodation and school fees until April 2021.
Income tax and National Insurance rates
The personal allowance will rise to £11,500 in April 2017, towards the Government’s target of £12,500 by 2020. The threshold for higher rate tax will increase next April to £45,000.
Also from April 2017 the National Insurance thresholds will be aligned so that both employers and employees will start paying NICs on weekly earnings above £157.
National Living Wage and National Minimum Wage
The National Living Wage will increase in April 2017 from £7.20 per hour to £7.50 per hour, towards the target of reaching 60% of median earnings by 2020. This increase is lower than forecast earlier this year by the Office for Budget Responsibility, because wage growth across the economy has decreased since the Brexit referendum result.
The Government is accepting the Low Pay Commission’s recommendations for the other National Minimum Wage (NMW) rates, and is also investing additional resources in NMW enforcement targeted at compliance by small businesses and an awareness-raising campaign.
Taxation of termination payments
It was announced in the March 2016 Budget that major reforms would be made to the taxation of termination payments. These reforms have been clarified by the announcement that tax will only be applied to the equivalent of an employee’s basic pay if their notice is not worked. The first £30,000 of a termination payment will remain exempt from income tax and NICs.
The Chancellor announced a new National Productivity Investment Fund of £23bn to be spent on innovation and infrastructure over the next five years. The rationale for this is the need to raise productivity towards the “high wage, high skill economy”, in the context that productivity rates in the UK continue to lag far behind other countries such as Germany, France and the USA. The Chancellor cited the productivity gap as the reason why British workers work longer hours for lower pay than their counterparts abroad.
Employer shareholder status
The Government plans to abolish the tax advantages linked to employee shareholder status (ESS) in response to growing evidence of its primary use for tax-planning purposes by high-earning individuals, rather than its original purposes of encouraging participation and investment in start-up businesses and supporting a more flexible workforce. This will apply for new ESS arrangements from 1 December 2016, and existing ESS schemes will be protected.
From next April all employees called to give evidence in court will no longer need to pay tax on legal support from their employer. Currently only those employees requiring legal support because of allegations against them can enjoy tax relief on legal support.