Autumn Statement

It’s the day after the Autumn Statement, and there have been quite a few changes that may affect your employees, and how payroll is ran.  We’ve compiled these changes into a summary which are detailed below;

Salary Sacrifice

The government is proposing to implement fundamental changes to salary sacrifice, as outlined in the consultation issued earlier this year. However, there are some important alterations to the previous proposals.

With effect from April 2017, the general rule will be that “the tax and employer NIC advantages” will be removed, but pensions, childcare, cycle to work and ultra-low emission cars will be exempt from the changes. Importantly, arrangements which are 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.

This proposal allows some breathing space for the large numbers who would otherwise have been adversely affected in relation to choices that have already been made, or will be made in the next few months, but employers will need to review flexible benefit arrangements to manage both reward strategies and compliance.

Please note - no mention was made in relation to employee NIC advantages being removed and in particular it was disappointing that no mention was made in relation to additional holiday salary sacrifice schemes as being exempt. I suspect the employee NIC advantage was an oversight and this too will be removed, unless an exempt scheme is involved.

Accordingly, we must for the meantime assume that any tax and employer NIC advantages of these schemes will disappear in due course, although if we become aware of any changes we will of course communicate these to you in another summary.

Termination Payments

Following the consultation this year, it is confirmed that employer NIC will apply to termination payments above £30,000 (in line with income tax). In addition, pay in lieu of notice will be subject to tax generally, amending the current situation where it depends on the specific contractual terms. It appears the pay in lieu change will, however, only affect “basic” pay, rather than the wider changes affecting all earnings which had been proposed, and would have been complex to administer.

These changes will be implemented from April 2018 and will no doubt need to be taken into consideration when structuring some of the larger termination payments.

National Minimum Wage (NWM)/National Living Wage (NWL)

The government confirmed that NLW rates will increase in April 2017, however they also confirmed that NMW rates will also increase at this point in time too. It wasn’t clear whether NMW rates will increase further in October 2017, or whether any changes will now take place in April of each year.

In addition, the government had outlined plans to invest a further £4.3m in their NMW Enforcement teams, allowing them to take a more proactive approach in raising awareness and targeting sectors where failures are deemed to occur.

PAYE Settlement Agreements

The government has said it will legislate to simplify the process of applying for and agreeing PSAs, to come into effect from April 2018, following the consultation this year. Further details are awaited.

Employee Benefits and Expenses

Several changes are being proposed and consulted on in relation to benefits and expenses:

• From April 2017, the rules relating to “making good” benefits will be simplified and made more consistent, in line with the consultation earlier this year. Payment will need to be made by the employee by 6 July to reduce the taxable value of the benefit
• Legislation on assets made available for private use will be clarified with effect from April 2017, so that employees are only taxed for the period the asset is available
• The government will consider how benefits in kind are valued for tax purposes, publishing a consultation on employer-provided living accommodation and a call for evidence on the valuation of all other benefits in kind at Budget 2017
• There will be a call for evidence at Budget 2017 on the use of the income tax relief for employees’ business expenses, including those that are not reimbursed by their employer – previously HMRC was considering changing the rules so that there would be no tax relief unless the employer reimbursed the expense.

Off-payroll working

As expected, new rules for the public sector will apply from April 2017, which will give the engager (or agency) responsibility to apply PAYE where a personal service company is engaged and “IR35” deemed employment rules would apply. The 5% tax-free allowance which normally applies for IR35 will not apply.

It remains to be seen whether these changes will be applied to the private sector in due course. The Chancellor in his speech stated “…the OBR has today highlighted the growing cost to the Exchequer of incorporation. So, the government will consider how we can ensure that the taxation of different ways of working is fair between different individuals, and sustains the tax-base as the economy undergoes rapid change. We will consult in due course on any proposed changes.”

Tax/NIC rates

Some adjustments are proposed to tax/NIC rates and thresholds. Details can be found here: https://www.gov.uk/government/publications/tax-and-tax-credit-rates-and-thresholds-for-2017-18/tax-and-tax-credit-rates-and-thresholds-for-2017-18#national-insurance-contributions-nic

If you have any questions on what you have just read, or how it might affect you, then don't hesitate to contact us.  You can email info@chrysalispayroll.co.uk or call 0191 673 0062.