Need to know:
- In the Budget 2016, the government announced the alignment of the national minimum wage and national living wage cycles.
- From April 2018, employer national insurance contributions will be payable on termination payments exceeding £30,000.
- The 0.5% apprenticeship levy will be introduced from April 2017 as planned; this will only impact employers with an annual wage bill of £3m or more.
Chancellor George Osborne gave his Budget to Parliament on Wednesday 16 March 2016. There was general uncertainty before the Budget as to whether the government would introduce any significant changes in 2016 in response to a number of consultations on employment law and employee-related tax issues. On the whole, employers are likely to be breathing a sigh of relief that any potentially high-impact changes have largely been put on the back burner, or at least deferred.
The latest position on some of the more important employment and employee-related tax issues, following this Budget, are detailed below.
Termination payments
Currently, any termination payments (other than amounts that are taxable earnings, for example, holiday pay and contractual pay in lieu of notice) are income tax-free up to £30,000 and completely free of national insurance contributions (NICs).
The Budget announced that the current rules would be preserved for the time being. However, from April 2018 employer NICs, but not employee NICs, will be payable on any amount of a termination payment exceeding £30,000.
It was also announced that the government will “tighten the scope of the exemption to prevent manipulation”, also from April 2018. This is aimed at ensuring that all payments in lieu of notice will be fully taxable, in particular, what HM Revenue and Customs calls auto-Pilons, that is, damages paid by reference to an unworked notice period where the contract of employment is silent on pay in lieu.
Salary sacrifice
Salary sacrifice remains untouched for now, and the government has committed to not changing the way that salary sacrifice can be used in conjunction with pension saving, childcare, and health-related benefits such as bikes-for-work. It has, however, put down the marker that it might limit the range of other benefits that can be provided through salary sacrifice arrangements.
Personal services companies (PSCs)
The intermediaries legislation, often referred to as the IR35 regime, is also being left in place. Public sector bodies are to be made responsible for determining whether workers who operate through PSCs should be subject to PAYE, and then applying PAYE if applicable. However, there is no mention of equivalent provisions for the private sector, it would seem that the proposals in the previous consultation are not being taken forward for now at least.
Apprenticeship levy
The apprenticeship levy, announced in the 2015 Autumn Statement, will be introduced from April 2017 as planned. This will be a levy of 0.5% of an employer’s pay bill, subject to a £15,000 allowance. It will, in practice, only affect employers with an annual pay bill in excess of £3 million.
Shared parental leave
The Budget announced employment at a record high with a rate of 74.1% in the fourth quarter of 2015. Female employment is also at a record high. However, 90% of those who are not working because they are caring for family are women. In light of this, the government intends to launch a consultation in May 2016 on the proposals to extend shared parental leave and pay to working grandparents.
National minimum wage
The government has also accepted the Low Pay Commission’s (LPC’s) recommendations that the national minimum wage hourly rates should increase in October 2016. The government will also be aligning the national minimum wage cycle with the new national living wage of £7.20 for low-wage workers aged 25, which came into effect in April 2016. Therefore, the national minimum wage will increase in April of each year and the change in cycle will come into effect in April 2017.
Helen Corden is legal director at law firm Pinsent Masons