The Chancellor delivered his Autumn Statement on 23 November 2016 and there were several employment law aspects of note.
Employee Shareholder Status (ESS) will be abolished
The ESS scheme was introduced in 2013 and allowed individuals to give up some of their statutory employment rights in exchange for shares in their employer. The tax advantages of the scheme were initially very generous as employee shareholder shares up to the value of £50,000 (at the time of acquisition) were exempt from capital gains tax on first disposal. However, in this year's Budget, George Osborne introduced a £100,000 cap on tax-free gains.
There was apparently evidence that ESS was primarily being used for tax-planning purposes by high-earning individuals and therefore it was announced in the Autumn Statement that the scheme will be abolished for arrangements entered into on, or after, 1 December 2016.
Any ESS schemes which are live but have not yet completed, will only be able to meet the deadline of 1 December 2016 if the individuals have already received their independent legal advice and the ESS shares are issued before 1 December 2016.
The National Living Wage (NLW) and the National Minimum Wage (NMW) will increase from April 2017
The National Living Wage for those aged 25 and over will increase from £7.20 per hour to £7.50 per hour. That means over £1,400 a year more for a full-time worker previously on the National Minimum Wage.
The National Minimum Wage will also increase as follows:
- for 21 to 24 year olds - from £6.95 per hour to £7.05
- for 18 to 20 year olds - from £5.55 per hour to £5.60
- for 16 to 17 year olds - from £4.00 per hour to £4.05
- for apprentices - from £3.40 per hour to £3.50
As a result of the alignment of the dates on which the NMW and NLW increase, businesses will have to cope with two increases to the NMW in six months - the NMW was previously increased every October. Not only does this result in an extra administrative burden, but the financial impact of an additional rise will be considerable for sectors such as social care, hospitality and retail. A rise in wages has a knock on effect on national insurance contributions and employer pension contributions.
Understandably, employers will be looking to pass on increased staff costs to consumers where possible, which is likely to feed into inflation figures. As we saw when the NLW was first introduced, employers making savings by reducing employee benefits and postponing pay rises is also a possibility.
Termination payments: changes to tax treatment confirmed
As announced in the 2016 Budget, it was confirmed that from April 2018 termination payments over £30,000, which are subject to income tax, will also be subject to employer NICs.
Following a technical consultation, tax will only be applied to the equivalent of an employee's basic pay if their notice is not worked, making it simpler to apply the new rules.
The first £30,000 of a termination payment will remain exempt from income tax and National Insurance.
The government will monitor this change and address any further manipulation.
Tax changes to salary sacrifice schemes
In salary sacrifice schemes, employees exchange some of their salary for a non-cash benefit in kind (such as a mobile phone). Both the employer and employee make a tax saving, because the benefit is taxed less than a salary or not taxed at all. However, following a consultation, from April 2017, most salary sacrifice schemes will be subject to the same tax as cash income.
This change will affect types of salary sacrifice schemes differently:
- pensions, pensions advice, childcare, Cycle to Work and ultra-low emission cars will be exempt and will continue as before
- all arrangements in place before April 2017 will be protected for up to a year, and arrangements in place before April 2017 for cars, accommodation and school fees will be protected for up to 4 years
For more information on these topics see our previous articles:
Employee shareholders from 1 September 2013
National Living Wage: controversy continues
Changes to taxation of termination payments confirmed
Benefits in kind: could salary sacrifice be limited?
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.