The cost of employment is on the increase.
Today the Chancellor announced a number of changes in the employment arena, some of which will result in the cost of employment rising for businesses. We have summarised the key announcements below.
National living wage and national minimum wage
The National Living Wage (NLW) will rise from £7.20 to £7.50 from April 2017, and the following National Minimum Wage (NMW) rates, which were last increased in October 2016, will apply from April 2017:
The government will strengthen NMW enforcement with HMRC teams proactively reviewing those employers considered most at risk of non-compliance. The government will provide additional support targeted at small businesses to help them to comply, alongside a campaign to raise awareness among workers and employers of their rights and responsibilities.
National insurance contributions (NIC)
There was only one surprise announcement in the Autumn Statement in relation to NIC which was the alignment of the secondary (employer) and primary (employee) threshold from April 2017. This means that both employers and employees will start paying NIC on weekly earnings above £157. We welcome this alignment which we believe is long overdue.
It was confirmed that class 2 NIC will be abolished from April 2018. Following the abolition of class 2 NIC, self-employed contributory benefit entitlement will be accessed through classes 3 and 4 NIC. All self employed women will continue to be able to access the standard rate of maternity allowance.
Self employed people with profits below the small profits limit (£6,025 for 2017/18) will be able to access contributory employment and support allowance (CESA) through class 3 NIC. There will be provision to support self-employed individuals with low profits during the transition.
From April 2018, the time limits and recovery process for national insurance debts will be aligned with other taxes and Limitation Act 1980 (and Northern Ireland equivalent) will no longer apply to NIC. The government will consult on the details.
From April 2018 termination payments over £30,000, which are subject to income tax, will also be subject to employer NIC. Tax will only be applied to the equivalent of an employee’s basic pay if their notice is not worked. This is intended to make it simpler to apply the new rules. The first £30,000 of a termination payment will remain exempt from income tax and NIC.
Off-payroll working rules
The off-payroll working rules in the public sector will be reformed from April 2017 by moving responsibility for operating them, and paying the correct tax, to the body paying the worker’s company. This reform is intended to ensure that those working in a similar way to employees in the public sector will pay the same taxes as employees.
In response to feedback during the consultation, the 5% tax-free allowance will be removed for those working in the public sector, reflecting the fact that workers no longer bear the administrative burden of deciding whether the rules apply. We had some reservations about these proposals during the consultation and these are published as ICAEWREP 127/16.
From April 2017, all employees called to give evidence in court will no longer need to pay tax on legal support from their employer. This is intended to level the playing field, as presently only those requiring legal support because of allegations against them can use the tax relief.
The taxation of different forms of remuneration
The government intends to take the following action intended to make the taxation of benefits in kind and expenses fairer and more coherent:
From April 2017, most salary sacrifice schemes will be subject to the same tax as cash income. This will affect types of salary sacrifice schemes differently. Note that pensions, pensions advice, childcare, cycle to work and ultra-low emission cars will be exempt from the changes. All arrangements in place before April 2017 will be protected for up to a year, and arrangements in place before April 2017 for cars, accommodation and school fees will be protected for up to four years.
The government will consider how benefits in kind are valued for tax purposes, and will consult on employer-provided living accommodation and call for evidence on the valuation of all other benefits in kind at Budget 2017.
The government proposes to 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. We welcome this as we have long felt that there is inconsistency between the ability of employees to get relief, for example, for training costs incurred by employees but not reimbursed as compared to equivalent costs paid by employers.
Company car tax bands and rates for 2020/21
To provide stronger incentives for the purchase of ultra-low emission vehicles, new and lower bands will be introduced for the lowest emitting cars. The appropriate percentage for cars emitting greater than 90g CO2/km will rise by 1%.
Dates for ‘making good’ on benefits in kind
From April 2017, an employee who wants to ‘make good’ on a non-payrolled benefit-in-kind will have to make the payment to their employer by 6 July in the following tax year.
“Making good” is where the employee makes a payment in return for the benefit in kind they receive. This reduces its taxable value.
Assets made available without transfer of ownership
From 6 April 2017 the legislation will be clarified to ensure that employees are taxed on business assets only for the period that the asset is made available for their private use.
Simplifying the PAYE settlement agreement (PSA) process
Following consultation, the process for applying for and agreeing PSAs will be simplified. This will have effect in relation to agreements for the 2018/19 tax year onwards.
The government proposes to deny tax relief for an employer’s contribution to a disguised remuneration scheme unless tax and NIC are paid within a specified period.
Budget 2016 set out the proposals for disguised remuneration for employees however the rules will now be extended to tackle the use of disguised remuneration avoidance schemes by the self employed.
Employee shareholder shares (ESS): new shares
The income tax and capital gains tax reliefs linked to shares awarded under ESS will be abolished for arrangements entered into on or after 1 December 2016.
The delay until 1 December is to allow any individual who has received independent advice about entering into an agreement before 1:30pm on 23 November 2016 the opportunity to enter into an ESS before 1 December (but not later) and still receive the income and CGT tax advantages that were known to be available when they received the advice.
Shares received under agreements made before the aforementioned dates, and corporation tax reliefs for the employer company, are unaffected.