On 14 November 2016, the Chancellor of the Exchequer, Phillip Hammond, delivered the Autumn Statement. Here we outline the key changes of interest to employment lawyers and HR professionals.
National Living Wage / National Minimum Wage
There will be a 30 pence rise in the National Living Wage (NLW) rate from £7.20 to £7.50 per hour from April 2017. The National Living Wage was introduced on 1 April 2016 operating as an additional band on top of the existing National Minimum Wage regime for workers aged 25 and over. The current National Living Wage is rate is £7.20 per hour. This had been due to rise to £9.00 per hour by 2020, meaning an increase of approximately 45 pence per year. However, recent research by the Resolution Foundation predicted that the impact of Brexit would mean these rises would be depressed to approximately 30 pence per year, leading to a rate of around £8.60 by 2020.
The National Minimum Wage (NMW) will also increase as follows:
- for 21 to 24 year olds – from £6.95 per hour to £7.05
- for 18 to 20 year olds – from £5.55 per hour to £5.60
- for 16 to 17 year olds – from £4.00 per hour to £4.05
- for apprentices – from £3.40 per hour to £3.50
The Government has also committed to invest an additional £4.3 million per year to strengthen enforcement. This will fund new HMRC teams to "proactively review" those employers considered most at risk of non-compliance with the NMW.
Taxation of salary sacrifice schemes
From April 2017, following the conclusion of the public consultation process, most salary sacrifice schemes will be subject to the same tax in the same way as cash income. To read our report on the consultation proposal to reform the taxation of salary sacrifice schemes, please click here.
The Chancellor confirmed that the reforms will affect types of salary sacrifice schemes differently:
- pensions, pensions advice, childcare, cycle-to-work and ultra-low emission cars will be exempt;
- all arrangements in place before April 2017 will be protected until April 2018; and
- arrangements in place before April 2017 for cars, accommodation and school fees will be protected until April 2021.
Taxation of termination payments
In July 2015 the Government published consultation proposals in relation to the tax and National Insurance contributions treatment of termination payments. The Government published its response to that consultation (and issued a further technical consultation) in August.
The Chancellor confirmed in the Autumn Statement that from April 2018 termination payments over £30,000, which are subject to income tax, will also be subject to employer NICs.
Other employment tax issues
- Valuation of benefits in kind
There is to be consideration of how benefits in kind are valued for tax purposes. A consultation will be published on employer-provided living accommodation and a call for evidence will be published on the valuation of all other benefits in kind.
- Employee business expenses
A call for evidence will be published on the use of the income tax relief for employees’ business expenses, including those that are not reimbursed by their employer
Employee shareholder status – removal of tax reliefs
The Chancellor announced the removal of income tax reliefs on the receipt or buy-back of shares issued to an employee under an Employee Shareholder (ES) agreement made on or after 1 December 2016. It also removes the Capital Gains Tax exemption relating to shares received as consideration for entering into an ES agreement on or after the same date. Shares received under ES agreements made before 1 December 2016 are not affected.
This means an individual wishing to enter into an ES agreement (and benefit from the associated tax reliefs) would need to have obtained independent legal advice on the terms of the agreement by no later than 1.30pm on 23 November 2016. This is because there must be 7 clear days between the receipt of independent legal advice and the coming into effect of the ES agreement.
Although the ES status will continue to exist as a matter of employment law, it is unlikely to be used given the loss of the tax advantages. Furthermore, the Government has indicated its intention to close the ES status "at the earliest opportunity" by passing relevant legislation. The impact of the removal of the ES status will be relatively limited: recent statistics published by HMRC showed that in the period of 1 September 2013 to 5 April 2014 only 40 companies issued ES shares to a total of 230 employees.
Personal tax allowance and the higher rate tax threshold to be raised
The Personal Allowance will rise from the current rate of £11,000 to £11,500 in 2017-18.
The higher rate income tax threshold will increase from £43,000 this year, to £45,000 in 2017-18.