Yesterday’s Budget reinforced a number of key developments for employers. It confirmed the government’s commitment to working families and equality in the workplace, as well as seeking to provide a perhaps much-needed sweetener for some employers on the new apprenticeship levy. The proposals on taxing termination payments may also mark the start of anticipated, but potentially costly, reforms for employers in this area.
Termination payments: April 2018 sees some increased cost for employers, but will more be on the cards?
There was speculation that this Budget would announce some radical changes to the taxation of termination payments, potentially making it significantly more costly for employers involved in termination negotiations. The Budget delivered less than expected but still at a cost to employers. From April 2018 the government will tighten the scope of the current national insurance contributions (NICs) exemption on the whole of non-contractual termination and redundancy payments, so that employer NICs will now become due to the extent a termination payment exceeds £30,000 (this part of the payment is already subject to income tax).
The first £30,000 of a termination payment falling within the statutory regime will remain exempt from income tax. The full payment will remain outside the scope of employee NICs.
However, the budget is notably silent on confirming that this is the only reform it is taking forward in relation to the taxation of termination payments and more may well be on the cards. We are still awaiting a response to the government consultation on its plans to simplify tax on termination payments which closed in October 2015 and which proposed a number of more extensive (and potentially for employers, expensive) reforms to simplify the system (see here).
Granny stays on track to become nanny. Granddad too, of course!
May 2016 will see a consultation on extending shared parental leave and pay to working grandparents. This proposed extension is not a surprise – the Autumn Statement in 2015 confirmed it would be on the cards for 2016 (see here). However, the government does seem to have taken on some initial concerns that this could yet be another administrative complication for employers. The consultation will also cover options for streamlining the system, including simplifying the eligibility requirements and notification system. It will also explore the potential to make better use of digital technology.
As part of its commitment to the family, the government will also work with the Behavioural Insights Team to look at new ways to support parents in choosing how and when to return to work.
… and new tax-free childcare allowance for working couples or single parents on course for 2017
The government also confirmed that from early 2017 it will be introducing its new “tax-free childcare” allowance to help working parents with the cost of childcare (see here). To be eligible for the new scheme, an individual must be working and earning less than £100,000. If they have a partner, their partner must be working too (and similarly earn less than £100,000). Existing employer-supported childcare schemes can remain open to new entrants until April 2018, although members of these schemes may well choose to leave where they are better off under the government’s new proposals.
The government is also doubling the free childcare entitlement from 15 hours to 30 hours a week for working families with three to four year olds from September 2017.
Employers encouraged to reap the benefits of appointing apprentices.
Whilst apprentices are very much a part of some workplaces, there are many others which have yet to consider their introduction. The apprenticeship levy, to be paid by all employers with a payroll over £3million, clearly raises the stakes in this regard (see here). Despite the government’s promise that those employers who embrace apprenticeships should get back more than they pay in, today it was confirmed that from April 2017 (which is when the levy will be introduced) employers in England will receive a 10% top-up to their monthly levy contributions to spend on apprenticeship training – providing some positive encouragement to employers to ensure they carefully consider whether and how they can use their levy contributions and this new government funded top-up. If an employer does not use their levy entitlement within a specified period – it will be made available to another employer to take advantage of….
Further details on the operating model will be published in April and the draft funding rates will be published in June.
… whilst relief for employee shareholders restricted
Since September 2013 “employee shareholder” status has been available, whereby an individual may take advantage of certain tax benefits (including a capital gains tax exemption) on shares awarded to them as an employee shareholder in exchange for giving up certain employment rights.
Whilst the government has indicated that it remains supportive of this relatively new form of employment status, the Budget announced that for employee shareholder arrangements entered into on or after 17 March 2016 there will be an individual lifetime limit of £100,000 on gains eligible for the capital gains tax exemption. The introduction of a limit is perhaps not a surprise given the extremely generous exemption previously available, however the new limit may be viewed by some as low (particularly given that individuals give up employment rights in order to become employee shareholders).
A commitment to supporting wages
The new mandatory National Living Wage will come into effect from 1 April 2016, set at £7.20 an hour for workers aged 25 and above (see here). This represents a £900 cash increase in earnings for a full-time worker on the current National Minimum Wage (NMW). From 1 October 2016, the main rate of the NMW which will apply to workers aged between 21 and 24 will be set at £6.95. This is in line with the Low Pay Commission’s recommendations.
The personal allowance will also rise from £11,000 in 2016-17 to £11,500 in 2017-18 as part of the government’s commitment to ensure that no one working 30 hours per week on the NMW will pay income tax.
The higher rate tax threshold will also increase to £45,000 in 2017-2018 as part of its commitment to ensure that the tax system encourages individuals to progress in employment.
… but keep an eye on salary sacrifice arrangements
The government is considering limiting the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes. However, the government’s intention is that pension saving, childcare and health-related benefits such as Cycle to Work should continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements.