Budget 2016: Key points for employers
Today’s budget includes news on the taxation of termination payments, the extension of shared parental leave to grandparents and limits on salary sacrifice arrangements.
The Chancellor’s confirmation that the first £30,000 of a termination payment will remain exempt from income tax will be welcomed by employers and employees alike. However, from April 2018, rules on income tax and employer National Insurance Contributions (NICs) will be aligned, meaning that employers will have to pay employer NICs on any termination payment to the extent that it exceeds £30,000. The whole of the termination payment will remain outside the scope of employee NICS. However, legislation will be introduced to ensure that from April 2018 all payments in lieu of notice (whether contractual or paid as damages) will be taxed in full as earnings. This means that payments in lieu of notice will be not taxed under the rules relating to termination payments and tax and NICs will have to be deducted.
Other announcements include:
- The Government is considering limiting the range of benefits that attract income tax and NICs advantages when provided as part of salary sacrifice schemes. However, pension saving, childcare and health-related benefits, such as Cycle to Work, will continue to benefit from income tax and NICs relief.
- In May 2016, the Government will launch a consultation on how to implement its commitment to extend shared parental leave and pay to working grandparents.
- Tax-free childcare will be rolled out, starting early 2017, with the youngest children entering the scheme first, and all eligible parents brought in by the end of 2017. In addition, the existing Employer-Supported Childcare will remain open to new entrants until April 2018 to support the transition between the schemes.
- The adult National Minimum Wage rate (for those aged 21 to 24) will increase to £6.95 per hour from 1 October 2016.
- For 2017/18, the income tax personal allowance will increase to £11,500 and the higher rate threshold will increase to £45,000.
- From 2018, employers who receive penalties for hiring illegal workers will also lose a year’s employment allowance. The employment allowance, worth £3,000 as at 1 April 2016, is an allowance against the employer’s NICs bill.
- From April 2017, the Government will make public sector bodies and agencies responsible for operating the tax rules that apply to off-payroll working through their own limited companies in the public sector. The rules will remain unchanged for those working in the private sector.
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