The Chancellor, Philip Hammond, has delivered his first (and the last) Autumn Statement outlining the government’s taxation and spending plans in the wake of the Brexit vote (see here and here). His task, as he described it, is to prepare our economy to be resilient as we exit the EU; “Investing today for the economy of the future”. The Office for Budget responsibility’s (OBR’s) current view is that the referendum decision means that potential growth over the forecast period is 2.4 percentage points lower than would otherwise have been the case.
A focus on raising productivity
The Chancellor was clear that the UK needs to become more productive; enabling wages to rise and people to enjoy higher living standards. There will be a new National Productivity Investment Fund of £23 billion to be spent on innovation and infrastructure over the next five years including:
- £4.7 billion to enhance the UK’s position as a world leader in science and innovation;
- £2.6 billion to tackle congestion and ensure the UK’s transport networks are fit for the future; and
- £0.7 billion to support the roll out of broadband and 5G communications.
The specific investment in broadband and 5G should be good news for forward thinking employers looking at agile working solutions and freeing up expensive office space; as well as the fund itself benefitting the way services are delivered and shoring up the UK’s skill base in research and development.
Keeping pace with a modern workforce
The impact on revenues of rapidly rising self-employment was also a specific focus. With perhaps one eye on the current reviews on the modern workforce (the independent review led by Matthew Taylor of the RSA (here) and the BEIS select committee review due to commence in January 2017 (here)), the Chancellor specifically alluded in his speech to “technological progress” which is “changing the way people live, and the way they work; The tax system needs to keep pace… 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“. The Chancellor announced the government will “consult in due in course on any proposed changes“. In the meantime, businesses operating via platforms of independent contractors may want to take specific note that an additional £4.3 million per year is being made available for enforcement of the National Minimum Wage (NMW). This is stated to “fund new HM Revenue and Customs teams to proactively review those employers considered most at risk of non-compliance with the NMW“.
Ten key points for employers
Key plans for employers to be aware of now include:
1. National Living Wage (NLW): The NLW will increase from £7.20 an hour to £7.50 in April next year. The government will also accept all of the Low Pay Commission’s recommendations for the other NMW rates (which were last increased in October 2016) to apply from April 2017, including:
- increase the rate for 21 to 24 year olds from £6.95 to £7.05 per hour
- increase the rate for 18 to 20 year olds from £5.55 to £5.60 per hour
- increase the rate for 16 to 17 year olds from £4.00 to £4.05 per hour
- increase the rate for apprentices from £3.40 to £3.50 per hour
As indicated above, the government is pursuing its campaign of NMW enforcement with an additional £4.3 million per year being made available in this regard.
2. Employee shareholder status: Employee shareholder status is essentially abolished going forward; the concern being that it has largely been used as tax planning by high earning individuals and not for the government’s original intention of enabling individuals to feel a “greater responsibility towards the company” they work for, “improving their productivity, and going the extra mile to ensure it does well” (see here). The government’s proposed measure removes the income tax reliefs on the receipt of shares issued to an employee under an employee shareholder agreement made on or after 1 December 2016. It also removes the capital gains tax exemption relating to shares received as consideration for entering into an employee shareholder agreement on or after the same date. Shares received under agreements made before 1 December 2016 are not affected (see here).
3. Termination payments: As announced at the 2016 Budget, from April 2018 termination payments over £30,000, which are subject to income tax, will also be subject to employer National Insurance (NI) contributions. Following a technical consultation, tax will only be applied to the equivalent of an employee’s basic pay if their notice is not worked, making it simpler to apply the new rules. The first £30,000 of a termination payment will remain exempt from income tax and NI. Little detail was provided on the proposed changes at the Autumn Statement and we are still awaiting the outcome of the consultation on draft clauses which will bring in these changes (see here).
4. Taxing remuneration: Specific reforms in the pipeline include:
- Salary sacrifice – following consultation, the tax and employer NI advantages of salary sacrifice schemes will be removed from April 2017, except for certain arrangements the government wishes to encourage relating to pensions (including advice), childcare, Cycle to Work and ultra-low emission cars. This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income. Arrangements 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.
- Valuation of benefits in kind – 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.
- Employee business expenses – the government will publish 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.
5. Self-employment: Again, with the Chancellor recognising the impact of the growth in self-employment and in light of the current reviews on the modern workforce underway (see above), businesses should expect to see more developments in this regard. However, specific reforms announced include:
- VAT flat rate scheme – the government will introduce a new 16.5% rate from 1 April 2017 for businesses with limited costs, such as many labour-only businesses, to help “level the playing field”; and
- Off payroll working rules – following consultation, the government will reform the off payroll working rules in the public sector from April 2017 by moving responsibility for operating them, and paying the correct tax, to the body paying the worker’s company. The government believes public sector bodies have a duty to ensure that those who work for them pay the right amount of tax and that this reform will help tackle the high levels of non-compliance with the current rules and mean that those working in a similar way to employees in the public sector will pay the same taxes as employees.
These reforms essentially reduce the attractiveness of operating via a personal service company.
6. Childcare: The government has confirmed its pledge to support 30 hours of free childcare for working families from September 2017.
7. NI thresholds: the NI secondary (employer) threshold and the NI primary (employee) threshold will be aligned from April 2017, meaning that both employees and employers will start paying NI on weekly earnings above £157.
8. Personal allowance and higher rate threshold: The government will meet its commitment to raise the income tax personal allowance to £12,500 and the higher rate threshold to £50,000, by the end of this Parliament. Next year, the personal allowance will rise to £11,500 and the higher rate threshold to £45,000. Once the personal allowance reaches £12,500, it will then rise in line with the consumer price index as the higher rate threshold does, rather than in line with the NMW.
9. Workers on boards: Immediately before the Chancellor delivered his Autumn Statement, at Prime Minister’s Questions, Theresa May reiterated her desire to see workers represented on boards. This was not specifically addressed in the Autumn Statement itself. However, despite recent reports that this initiative is being watered down, businesses should perhaps expect the Prime Minister to seek to continue to advance this in some form. More news on this is expected shortly.
10. Apprenticeship levy: The apprenticeship levy is due to hit UK businesses from April 2017 (see here). Again, this was not specifically addressed in the Autumn Statement but fits squarely into the government’s overall message of seeking to shore up the UK’s skill base and develop the talent pipeline. Further guidance on the levy is expected in December.
This was the last Autumn Statement. The Chancellor announced that the Autumn Statement and Spring Budget will be scrapped, with the Spring 2017 Budget being the final one under the existing regime. The main Budget will instead be in autumn each year starting in 2017. There will then follow a Spring Statement, the first being in 2017 which will typically respond to forecasts from the OBR.
So will a future UK be the number one destination for business beyond Brexit?
The Chancellor confirmed in his Autumn Statement his desire for Britain to remain the “number one destination for business – creating the investment, the jobs and the prosperity to protect our long-term future”. In announcing his measures, his aim is to enable those who work to keep more of the money they earn and to create an economy, tax system and working environment fit for the way in which we now live and work. Whether this Autumn Statement delivers on that, particularly in light of the particular challenges the UK now faces in the lead up to Brexit remains to be seen. However, today’s Autumn Statement reinforces the government’s commitment to the modern workforce, critical to the UK’s continued growth and success.