With changes to national insurance thresholds to a rise in the national living wage, Philip Hammond’s Autumn Statement contained several important changes that employers need to prepare for.
Rise in national living wage
From April 2017, the national living wage for over-25s will rise 4.2%. This will mean an increase from £7.20 to £7.50 per hour.
There will be increases across the board to the minimum wage:
- 21-24 year olds – from £6.95 to £7.05 per hour
- 18-20 year olds – from £5.55 to £5.60 per hour
- 16-17 year olds – from £4.00 to £4.05 per hour
- Apprentices – from £3.40 to £3.50 per hour
These increases might be lower than expected, but will be in addition to the existing costs companies are facing. Employers are already having to pay out more on pension auto-enrolment, the apprenticeship levy and changes to holiday pay. But if the government is to reach its 2020 national living wage target of £9 per hour, an average annual increase of 50p per hour will be necessary.
Salary sacrifice schemes abolished
The government will be scrapping tax exemptions on the vast majority of salary sacrifice schemes from April 2017. Any currently in place can run until 2018, with certain benefits allowed to stay in place until 2020.
Changes to the tax-free personal allowance
The tax-free personal allowance will rise to £11,500 from April 2017, and then to £12,500 by 2020. The threshold for the higher rate of tax will also rise to £45,000 in 2017 and then £50,000 by 2020. From 2020, allowances will rise in line with the consumer price index instead of the national minimum wage.
Changes to national insurance thresholds
To simplify NI employer contributions, from April 2017 national insurance thresholds for employers and employees will be aligned at the same figure – £157 per week. This will represent a marginal rise in costs for employers.
IR35 tax changes
Personal service companies operating in the public sector will no longer be able to determine their tax status. Tax liability will be passed to recruitment firms and any others that pay contractors. Estimates suggest that 90% of public service contractors will be affected by these changes. Analysts predict that similar changes are likely to follow within the private sector, as part of the government’s wider review of self-employment taxation.
Employee Shareholder Status abolished
Employee Shareholder Status (ESS) will lose its tax advantages. Some companies see ESS as an important part of their employee value proposition (EVP), as it provides a mechanism for employees to become company shareholders. The changes are likely to greatly reduce the take-up of ESS, and critics argue that this goes against the government’s aim to improve worker representation and corporate governance.
£13m pledged for Productivity Leadership Group
An initiative aimed to boost the quality of management in the UK will receive an investment of £13m from the government. Business leaders welcomed this move as a step forward in the challenge to improve productivity. However, many believe that there also needs to be more changes in overall skills policy, if the UK is to truly move forward.