How will the Autumn Statement affect Employment?
Salary Sacrifice schemes
There were a number of employment related implications in this year’s Autumn Statement. The most controversial of these was perhaps the removal of tax-free incentives on “salary sacrifice” schemes. The schemes allowed employees to “buy” a certain number of employment perks by agreeing to a cut in their wages in return for certain benefits. The schemes would often be used to provide tax-free benefits such as medical insurance, free gym membership, health checks and mobile phone contracts.
The advantage to employees was that any tax and NI would be calculated on their lower, agreed wage discounting the “sacrifice” they have made in lieu of these perks. This could mean substantial savings and even meant some employees who would have been classed as higher earners could sacrifice enough of their wages for these perks thereby taking them into the lower tax bracket. For employers too, the salary sacrifice schemes meant they would benefit by being able to discount the portion of the salary which had been sacrificed when calculating national insurance payments. The more employees a company had, the more beneficial the scheme was and substantial NI savings could be made by larger companies offering a salary sacrifice scheme.
These schemes were never formally part of any Government policy however. The method grew organically some years ago and HMRC allowed the practice to continue unhindered. Recently, the Treasury has looked at the practice and has concluded that it is losing out on tax revenue as a result. The changes to the salary sacrifice scheme have been expected. However, keeping in line with policy, enhanced employer pension contributions (to registered pension schemes), childcare benefits, cycles and the cycle to work scheme and ultra-low emission cars will be exempt from these new changes.
National and Living wage
Increases were announced, effective from April 2017, as follows:
The National Living Wage for those aged 25 and over will increase from £7.20 per hour to £7.50 per hour.
The National Minimum Wage will also increase:
- 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
And the Chancellor confirmed that he will spend £4.3 million on helping small businesses to understand the rules and on cracking down on employers who are breaking the law by not paying the minimum wage.
Raising the tax-free personal allowance
The Chancellor confirmed that the tax-free personal allowance will be raised to £11,500 in April 2017. He further confirmed that ‘despite challenging fiscal forecasts” they will continue to raise the personal tax-free allowance to £12,500 by the end of the parliament.
The Chancellor also confirmed that the point at which the higher rate of income tax will kick in will increase from £43,000 this year, to £45,000 in 2017-18
Employee Shareholder Status
‘Employee shareholder’ status (ESS) was introduced in September 2013 as a new category of worker status. Employee shareholders could forgo a number of employment protections, such as the right to a redundancy payment and protection from unfair dismissal, in return for a minimum of £2,000 of shares in the employer’s business. There were various tax benefits to these schemes and employers used them to reward those in management or other employees who have contributed to the growth of a business. These schemes will now be abolished in situations where parties enter into the agreements on or after 1 December 2016. For ESS arrangements entered into before 1 December 2016, the tax advantages will continue to apply. The removal of this benefit is largely in response to evidence that ESS was being used for tax planning.
The Autumn Statement has confirmed that the first £30,000 of a termination payment will remain exempt from income tax and National Insurance. However, from April 2018 termination payments over £30,000, which are subject to income tax, will also be subject to employer NIC. 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. This means that certain post-employment and/or bonus payments will not be classed as earnings. However, the government has said it will monitor this change and address any further manipulation.