Not a huge amount of change to report from an employment tax point of view; the main headline for employers is the introduction of the new ‘Living Wage’.
Employment Taxes
The draft legislation for the package of benefit and expense reforms included in Finance Act 2015 has been now been released for a period of technical consultation. As a reminder these measures were the removal of the £8,500 threshold for benefits in kind, voluntary payrolling of benefits and an exemption for the reporting of qualifying business expenses. These are expected to come into effect from 6 April 2016.
A new consultation that has been launched as part of the Budget is regarding employment intermediaries and umbrella companies. This is part of George Osborne’s plan to ‘fix the roof while the sun is shining’ and seeks to remove what the Treasury sees as abuse of the travel and subsistence rules by umbrella companies and intermediaries. The proposals aim to remove the tax relief for home to work travel for workers that are supervised, directed or controlled in a similar way to a normal employee. Home to work travel is already not an allowable expense for employees.
A couple of tweaks are to be made to the Employment Allowance, the National Insurance (NI) break for businesses. From 6 April 2016 companies where the only employees are directors will be unable to claim the relief. On the other hand, the amount of the allowance is to be increased from £2,000 to £3,000 from the same date. The Treasury intends this to result in 90,000 employers being removed from paying NI. To recap, the deduction is only against Employer’s NI, any Employee’s NI contributions would still be payable.
Finally, the Chancellor also announced that the government has noticed the increase in take up of salary sacrifice arrangements and will be actively monitoring this going forward. It was mentioned that the cost to the taxpayer is rising, the note from the Treasury almost implied that the use of this purpose built mechanism is a form of tax avoidance. We think that we can expect to see more on this point in the future as pressure for increased tax receipts grows.
The Introduction of the Living Wage
This announcement was one of the poster child measures of this Summer Budget. We expected a change in the area of minimum wage after the rhetoric about Tax Credits representing the government funding the payment of low wages by businesses.
The Chancellor announced the introduction of a new National Living Wage (NLW) for those aged 25 and over which initially represents a 50p premium on top of the National Minimum Wage (NMW).
This will be a compulsory increase for employers but to limit the impact on small businesses the new pay rates will be phased in. The NLW will start at £7.20 per hour from April 2016 with the aim of reaching £9.00 by 2020.
Childcare
Finally, there were a couple of items relating to childcare. Whilst not employment tax related in the technical sense, changes to childcare are inextricably linked with employers due to the effect on workers’ hours and flexibility.
It had already been announced that the new tax free childcare scheme would be pushed back to 2017. This was supposed to be introduced this autumn and would have heralded the closure to new entrants of the current employer supported childcare voucher scheme. The Government has stated that the current system will remain open to new entrants until the proposed replacement is ready.
Also discussed was the proposed increase to free childcare for children aged three and four from 15 to 30 hours per week This will be introduced in some areas from September 2016 for working parents and is expected to be worth around £5,000 per year per child. This may mean that employers see part time employees looking to increase their hours as the childcare fees become more affordable.