This article was written by Orla Mahoney, Trainee Solicitor.
Last month, the Chancellor delivered his Autumn Statement. The key employment announcements arising from the Statement are summarised below.
Salary Sacrifice Schemes
In the Statement, the Chancellor announced a reduction in the number of employee benefits that will be eligible under salary sacrifice schemes. Such schemes allow employees to sacrifice a portion of their salary in exchange for benefits, as such lowering their tax bill as their gross salary is accordingly lower.
Whilst the most popular benefits such as employee pension contributions, childcare vouchers, cycle to work schemes and benefits relating to ultra-low emission cars will remain unaffected, from April 2017 most salary sacrifice schemes will be subject to the same tax treatment as cash income. Existing benefits will be protected until April 2018, except for car, accommodation and school benefits which will continue until 2021.
Employee shareholder status (“ESS”)
The government abolished the remaining income and capital gains tax reliefs in respect of shares acquired as part of an ESS arrangement entered into on or after 1 December 2016. For arrangements entered into before this date, the tax relief will continue to be available.
The ESS scheme, which was introduced in 2013, provided employees with generous tax reliefs in exchange for relinquishing a bundle of their employment rights. Whilst the scheme was originally aimed at encouraging small businesses to have a more flexible workforce, in practice they have been popular with high earners, including in a private equity context, to make tax savings. The government has acknowledged that the reason for abolishing these schemes is in response to evidence that ESS is being used for tax planning. Whilst ESS technically remains open for the time being, the Government intends to close the system altogether by amending the ERA at the earliest opportunity.
Minimum / Living Wage
On 1 April 2017 the National Living Wage (for adults age 25 and over) is set to rise from £7.20 to £7.50. National Minimum Wage (adults age 21 – 24) will increase from £6.95 to £7.05. The development minimum wage, young workers minimum wage and apprentice minimum wage are all also set to increase. Additionally, the government is set to invest an additional £4.3 million each year to ensure national minimum wage enforcement.
It was confirmed in the Statement (as trailed in the 2016 Budget) that the exemption from income tax and national insurance contributions ("NICs") on termination payments up to the current threshold of £30,000 will be retained. However, from April 2018:
- employer NICs will be payable on any part of a termination payment which exceeds £30,000; and
- payments which are made in lieu of notice, or which relate to basic pay over an employee’s notice period, will be subject to tax.
In some cases, notably where payment in lieu of notice is made in the absence of a PILON provision, these changes will increase the tax liability and hence the cost of settlement, as currently such payments may not be taxable, However, the relative simplicity of these proposals, at least, will be welcome to many employers: readers may recall other more controversial and complex changes to the tax treatment of termination payments which were trailed in a recent consultation, and which have largely been dropped.