Chancellor George Osborne, announced the Summer Budget yesterday (8 July).
Below is a summary of all the key announcements impacting employee benefits:
- The government is to consult on a reformation of pensions tax relief by publishing a green paper shortly, setting out the various options. These choices range from fundamental reforms, for example moving to a system that is tax exempt such as individual savings accounts (Isas), to less radical changes, such as retaining the current system and altering the lifetime and annual allowances.
- Pay rises in the public sector are to be capped at 1% for a further four years from 2016-2017. The measure is expected to save around £5 billion by 2019-20.
- The government has once again confirmed that fuel duty will continue to remain frozen. A fuel duty increase planned for September in Osborne’s 2014 Budget was also cancelled. Overall, action on fuel duty since 2011 will save a company car driver around £675 by the end of 2015/16.
- The insurance premium tax rate will rise from 6% to 9.5%. The increase will come into force in November 2015.
- Workers aged 25 years old and over will receive a new national living wage of £7.20 an hour; a 70p increase on the current national minimum wage and 50p higher than the national minimum wage due to come into effect in October 2015. The government has asked the Low Pay Commission to set out how the new national living wage will reach 60% of median earnings by 2020. The aim is for the national living wage to reach at least £9 an hour by 2020.
- The lifetime allowance for pension contributions will be reduced from £1.25 million to £1 million from 6 April, the government confirmed today (8 July). The chancellor also confirmed that transitional protection for pension rights already over £1 million will be introduced alongside this reduction to ensure the change is not retrospective. The lifetime allowance will be indexed annually in line with the consumer price index (CPI) from 6 April 2018.
- Vehicle excise duty (VED) will be reformed, and will affect new cars registered from 1 April 2017. There will be no changes to VED for existing cars. First-year rates will depend on the car’s carbon dioxide emissions, and thereafter there will be three duty bands: zero emission, standard and premium.
- There will be no immediate changes to salary sacrifice schemes, but the Budget documents note that the government will actively monitor salary sacrifice schemes and their impact on tax receipts. The documents state: ‘Salary sacrifice arrangements can allow some employees and employers to reduce the income tax and national insurance that they pay on remuneration. They are becoming increasingly popular and the cost to the taxpayer is rising.’
- The tax-free personal allowance will increase to £11,000 a year from 2016-17. The new tax-free personal allowance threshold represents an increase of £400. Osborne also announced that the higher-rate tax threshold will increase to £43,000 a year.