The key announcements for employers from Chancellor George Osborne’s budget are:
- Termination payments over £30,000: compulsory employers national insurance contributions (NICs) will be introduced from April 2018 on such payments. These payments are already subject to income tax. However the additional payment of employers national insurance is expected to cost employers almost £500m a year by 2020-21. The Treasury confirmed that for people who lose their job, payments up to £30,000 will remain tax-free and they will not need to pay employee’s NICs on any of the payment.
- Intermediaries (IR35) and the public sector: the intermediaries legislation (often referred to as IR35) was introduced to tackle tax avoidance through disguised employment and applies where individuals provide their services through an intermediary, most commonly their own Personal Service Company (PSC).From April 2017, individuals working through their own company in the public sector will no longer be responsible for deciding whether IR35 applies. Rather the public sector will have to operate relevant payroll rules for these types of intermediaries.From this date when a public sector organisation engages an off-payroll worker through their own PSC/limited company and it has been decided that the engagement falls within the scope of IR35, the public sector organisation (or a recruitment agency if used) will become responsible for operating PAYE on the payments it makes to the PSC/limited company and for paying employers NIC.Public sector organisations will have help in deciding whether IR35 applies by the introduction of clear, objective tests and digital tools designed to provide real-time feedback on HMRC’s view of the engagement.
The intended effect of the legislation is that individuals working through an intermediary pay the same tax and NICs as any other employees where they would have been an employee if they were providing their services directly.
For the moment, the rules remain unchanged for those working in the private sector. This means that, in practice, in most cases, responsibility and liability in the private sector for calculating and paying the correct tax will remain with the PSC.
- Employee shareholder shares: These schemes, where employees give up various statutory rights in return for shares on which there are tax-free capital gains, were introduced in 2013. However, for shares issued pursuant to agreements entered into after 16 March 2016, the tax-free gain is limited to £100,000 worth of life-time gains on employee shareholder shares. Employee shareholder share arrangements entered into on or before 16 March 2016 remain unaffected
- Salary sacrifice: The Government wants to encourage employers to offer certain benefits but is concerned about the growth of salary sacrifice schemes and is therefore 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 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.
- Consultation on extension of shared parental leave to grandparents: the Government announced that it will launch a consultation in May 2016 on how to implement its commitment to extend shared parental leave and pay to working grandparents. The consultation will also cover simplifying the eligibility requirements and notification system.