Employment and Care Homes update following the Autumn Statement

Key employer tax announcements include:

• increasing the National living wage to £7.50 per hour from 1 April 2017.
• abolition of tax reliefs associated with employee shareholder status for shares acquired on or after 1 December 2016.
• significant narrowing the scope of salary sacrifice schemes from April 2017.

Please see below a summary of the main announcements.

National living wage (NLW) / National minimum wage (NMW)

The Chancellor announced that the NLW, which applies to all employees aged 25 or older, will increase to £7.50 per hour from 1 April 2017.

The NLW, which is effectively the highest rate of NMW, is currently set at £7.20 per hour. The other rates of NMW will also go up in April 2017. There is to be a further £43 million made available to HMRC to strengthen its NMW enforcement activity and awareness campaign.

Salary sacrifice

Following on from the consultation held over the summer, the Chancellor confirmed that, from April 2017, salary sacrifice arrangements may only be used to achieve tax and NIC savings in the case of:

• employer pension contributions and advice

• employer-provided childcare

• cycle to work schemes

• ultra-low emission company cars

For any other tax-exempt benefits, their exempt status will be lost if they are provided in exchange for a salary sacrifice and the law will be changed so that the employee is charged to tax on the higher of:

• the cash equivalent of the benefit as set out in the benefits code, or

• any amount of salary sacrificed in exchange for the benefit

Although the law will be changed as from 6 April 2017, any arrangements in place before that date can continue unaffected until 2018 (with a further extension until 2021 for existing longer term agreements covering cars, living accommodation and school fees). This means that employers should have sufficient time to renegotiate remuneration packages for affected employees.

Employee shareholder shares (ESS)

The Chancellor announced that the income tax and capital gains tax reliefs in relation to ESS are being scrapped, as a precursor to the whole concept of employee shareholder status being abolished at some future point. This is in response to HMRC’s findings that these reliefs are primarily being used for tax-planning purposes by wealthier employees.

The Chancellor announced that these tax advantages are being repealed for agreements entered into on or after 1 December 2016 (2 December 2016 in cases where the potential employee shareholder receives professional advice in relation to the share offer on Autumn Statement day before 1.30pm). This change should not affect the majority of employers.

Termination payments

In its response to its previous consultation on the simplification of the tax and NIC treatment of termination payments, HMRC has already indicated that the Government intended to make changes from 2018/19 to:

• remove the distinction between the taxation of contractual and non-contractual payments in lieu of notice (PILONs) and to make all PILONs both taxable and subject to Class 1 NIC

• retain the £30,000 threshold but to make amounts above it subject to secondary Class 1 NIC as well as income tax

• remove the foreign service exemption (except in the case of foreign service as a seafarer)

The Chancellor announced in the Autumn Statement that the proposed requirement to include in the computation of PILONs any estimate of bonuses was to be dropped, and the PILON is to be calculated by reference to basic pay alone.

Personal service companies (PSC)

The Government published a consultation over the summer on Off-payroll working in the public sector: reform of the intermediaries legislation.

That consultation proposed that where a PSC provides the services of a worker to a public body, such as a Government department, NHS trust or local authority, the public body will need to decide whether IR 35 applies and if so, the public body must pay to HMRC the tax and National Insurance on the deemed employment payment, deducting those amounts from the amount it pays to the PSC.

The Chancellor has now settled a question that was left open in that consultation – he has decided that the public body should not be allowed to deduct the normal 5% flat rate deduction from payments for the worker’s services in computing the deemed employment payment

The IR35 rules remain unchanged for cases where the worker’s services are provided to a private sector business.

Employer-provided legal support

The Chancellor announced that from April, no employee called to give evidence in court would have to pay tax on legal support provided by their employer. The detail is awaited, but this would appear to be an extension to the deduction in ITEPA 2003, s 346 which only applies where the employee is facing allegations made against him as holder of the employment. More detail may be available once the draft clauses for Finance Bill 2017 are published on 5 December 2016.

PAYE and Class 1 NIC

The Chancellor confirmed that from 5 April 2017, the primary and secondary thresholds for Class 1 NIC will be permanently aligned – the figure for 2017/18 will be £157 per week.

For further information related to the points raised in this article please contact Nathan Combes, Angela Gorton or Melanie List.