Announcements made by the Chancellor of the Exchequer, Philip Hammond, in his first Spring Budget and Autumn Statement have brought a number of changes that will affect how and, in some cases, the amount employers pay their staff.
Below we provide a summary of the key points to look out for:
National Living Wage and National Minimum Wage
From 1st April 2017, employers will be required to pay staff aged 25 and over the National Living Wage. The National Living Wage is initially set at £7.50 per hour.
The National Minimum Wage rates rose in October 2016 and will increase again from April 2017 to £3.50 for apprentices, £4.05 for 16 to 17 year olds, £5.60 for 18 to 20 year olds and £7.05 for 21 to 24 year olds. It is anticipated that the next rises will take place in April 2018 rather than October 2017.
Statutory family-related pay and sick pay
The weekly rate of statutory maternity, paternity, adoption and shared parental pay will go up to £140.98 for pay weeks starting on or after 2nd April 2017.
The weekly rate of statutory sick pay will also rise to £89.35 from 6th April 2017.
Benefits in kind
Salary sacrifice arrangements will be removed from 6th April 2017 except for childcare vouchers, pensions, pension advice, cycle to work schemes, ultra-low emission cars and intangible benefits, such as purchasing holiday leave.
The main benefits that will be affected include:
- Car parking
- Health assessments
- Mobile phones and technology
- Provision of own products/goods and services
Arrangements that are already in place will be protected until April 2018, and until April 2021 for some benefits.
IR35 in the public sector
New regulations are due to be introduced by HM Revenue & Customs (HMRC) that will affect about 250,000 contractors who currently work for the UK public sector directly or through an intermediary, such as a personal service company, usually in the IT, healthcare and energy sectors.
Where previously it has been up to the individual contractor, it will now be the public authority’s responsibility to establish whether the intermediaries rules apply and, if they do, ensure they make the necessary tax and National Insurance deductions.
For more about the changes to the IR35 rules please click here.
As previously announced, the personal allowance for 2017/18 will be £11,500. The basic rate band of 20% increases to £33,500. This means the 40% band starts on income above £45,000. The Government plans to increase these to £12,500 and £37,500 respectively by the end of this Parliament. This will mean an individual can earn up to £50,000 before paying tax at 40%.
However, in Scotland there is a different threshold at which Scottish taxpayers start to pay higher rate tax on their earned income. The Scottish Parliament has set the basic band rate at £31,500, which means the higher rate threshold for Scottish taxpayers, in respect of non-savings and non-dividend income, will remain at the current 2016.17 level of £43,000 for 2017/18.
Corporation Tax will go down to 19% from April 2017 and is due to be reduced to 17% in 2020. However, the Government is reducing the tax-free Dividend Allowance for directors-shareholders from £5,000 to £2,000 with effect from April 2018.
The allowance replaced the Dividend Tax Credit in April 2016, and offers a 0% tax rate on dividends within the Dividend Allowance.
Dividends above the allowance are taxed at the following rates:
■ 7.5% within the basic rate band
■ 32.5% within the higher rate band
■ 38.1% within the additional rate band
Dividend Tax Allowance
The abolition of the Dividend Tax Credit marked the end of so-called ‘tax-free dividends’ for basic rate taxpayers.
This subsequent reduction in the Dividend Allowance will further increase the cost of extracting income from owner-managed companies even though they will be paying less Corporation Tax.
There will also be several consultations looking at certain benefits in kind provided to employees and ways to make the tax system easier to understand.
Help is at hand
If you would prefer to concentrate on growing your business, at TaxAssist Accountants we can help you to comply with your duties as an employer.
Our payroll software is Real Time Information (RTI)-compliant and we can manage your day-to-day payroll requirements; even if your employees are on sick, maternity or paternity leave. We’ll also handle the payroll year-end for you, including any benefits and expenses forms due.
If you would like us to help you through these changes, call us today on 01934 429663.
By Andy Gibbs, ATT, CTA