In case you would prefer not to plough through the 64-page Autumn Statement, this article summarises the key things employers need to know from the Statement.
New National Minimum Wage (NMW) rates have been announced, which from 1 April 2017 will be:
• The rate for 21 to 24 year olds will increase from £6.95 to £7.05 per hour;
• The rate for 18 to 20 year olds will increase from £5.55 to £5.60 per hour;
• The rate for 16 to 17 year olds will increase from £4.00 to £4.05 per hour; and
• The rate for apprentices will increase from £3.40 to £3.50 per hour.
From April 2017, the National Living Wage (NLW) will increase from £7.20 to £7.50. The NLW was introduced on 1 April 2016 for all working people aged 25 and over. The NMW still applies for those under the age of 25.
NMW enforcement - The government is planning to invest £4.3million per year and to take a number of steps to reduce breaches of the NMW, including:
• Funding new HM Revenue and Custom teams to review employers considered most at risk of breaching NMW;
• Providing additional support to small businesses to help them to comply; and
• Running a campaign to raise awareness amongst employees and employers of their rights and responsibilities under the NMW.
How these steps will work in practice is not yet clear.
Termination payments - From April 2018, termination payments over £30,000 which are subject to income tax will also be subject to Employer NICs. The first £30,000 of qualifying termination payments will remain exempt from tax and National Insurance.
Salary sacrifice - the tax and employer National Insurance advantages of salary sacrifice will be removed from April 2017 except for:
• Arrangements relating to pensions (including advice);
• Cycle to Work; and
• Ultra-low emission cars.
Arrangements which are already 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.
Once these tax advantages are lost, employees who sacrifice salary for those benefits will pay the same tax as those who pay for them out of their post-tax income, so there will be little real benefit in continuing the salary sacrifice scheme(s).
There is huge concern about this from many employers, and it is likely to hit some company car drivers hard.
Valuation of benefits in kind (BIK) - the government will consider how BIKs are valued for tax purposes and will publish a consultation on employer-provided living accommodation and a “call for evidence” (effectively a consultation exercise) on the valuation of all other BIKs at Budget 2017.
So there won’t be any immediate changes, but watch this space.
Employee business expenses - again, the government is planning to publish a call for evidence at Budget 2017 on the use of income tax relief for employees’ business expenses, including those that are not reimbursed by their employer.
As above, there won’t be any immediate changes, but watch this space.
Employee Shareholder Status - the tax benefits associated with employee shareholder employment status has been removed for new entrants from 1 December 2016.
In case you have not come across this, “employee shareholder” is a type of employment status which involves someone working under an employee shareholder employment contract in return for at least £2,000 worth of shares in the employer’s company or employer’s parent company. Those shares benefitted from various tax reliefs and exemptions.
The tax advantages will remain for existing arrangements but will be scrapped for arrangements entered into on or after 1 December 2016.
What does this mean for you or your business?
Whilst some of the changes outlined above are simply proposed or are not intended to come into force for some time, you must be aware of the changes coming into effect on 1 April 2017 in relation to:
• the increased NMW and NLW rates; and
• the changes to certain salary sacrifice schemes.
What do you need to be doing now?
As explained above, salary sacrifice arrangements (save for pensions, childcare, bicycles and low emission cars) will lose their tax advantages from April 2017. Employers who offer other salary sacrifice arrangements, including flexible benefits packages (e.g. gym membership, health checks, mobile phones etc) should begin to review these to determine whether they remain cost effective.
Please be aware, however, that salary sacrifice arrangements will form part of an employee’s contract, so (depending on what the contract says) they cannot simply be changed or withdrawn. If in doubt, seek legal advice about this.
If you were planning to introduce salary sacrifice schemes (other than for pensions, childcare, cycle to Work and ultra-low emission cars), you should ensure that these schemes are in place before April 2017, so that they are protected until 2018 or 2021.
These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.