2016 Budget Announcements
Chancellor George Osborne has announced that from April 2018, termination payments over £30,000 will be subject to employer’s National Insurance Contributions as well as Income Tax, which is already payable. Under £30,000 will still be free of tax. He said in his speech that “the rules are complex and the exemptions incentivise employers to manipulate the rules, structuring arrangements to include payments that are ordinarily taxable such as notice and bonuses to minimise the tax and NICs due”.
For people who lose their job, payments up to £30,000 will remain tax-free, and they will not need to pay National Insurance on any of the payment.
It appears that more complex proposals floated by HMRC in their recent consultation on this issue, have not been taken further at this stage. But, they are also planning further consulting on wider changes to the tax and NI treatment of termination payments, including:
- taxing Payments In Lieu of Notice (PILONs) irrespective of whether they are contractual in nature or not; and,
- bringing in new rules to prevent contractual termination payments being “disguised” as damages in order to avoid tax and NI on them;
These changes will be an additional cost to employers – potentially making termination settlements much more expensive in the future. It is worth noting that had the £30,000 exemption kept pace with earnings, it would now be over £72,000, but the amount has remained static for a very long time.
In two years time, employers are less likely to be generous in what they are prepared to offer to staff in termination situations, as they look for ways to absorb the additional costs that the change will bring. As we get closer to the 2018 implementation date, some employers who are planning to restructure their workforce, are likely to look to push their plans forward sooner than they might otherwise, to avoid the national insurance charge.
Employers and employees may also be disappointed that an opportunity for simplification has been missed.
The Government is also considering limiting the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes, although the Treasury makes clear that pension saving, childcare and health-related benefits, such as Cycle to Work, will continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements.
Minimum Wage 2016
The standard rate of the national minimum wage for 21 to 24 year-olds will increase by 3.7% to £6.95 per hour, from October 2016, based on recommendations for the new rates from the Low Pay Commission.
Workers aged between 18 and 20 will see their pay rates rise by 4.7% to £5.55 per hour. The minimum wage for 16 to 17 year-olds increases to £4.00 per hour, a rise of 3.4%, while the apprentice rate increases 3% to £3.40.
The Government said the increase will mean that, for the first time, the national minimum wage for 21 to 24 year-olds is restored to its highest level in real terms, above its previous peak before the recession.
The National Living Wage, the minimum wage rate for workers aged 25 and over of £7.20 per hour, will be effective on 1st April 2016.
The challenge for employers is keeping up with pay, whilst juggling a number of other employment-related costs. It is increasingly difficult to disentangle rises to the national minimum wage rates with other business costs, such as the new apprenticeship levy, and pensions auto-enrolment. Necessary actions for employers are:
- From 2018, termination payments over £30,000 will need to add NI contributions to the calculations to establish the true cost.
- Review whether salary sacrifice is really a good long term option.
- Plan for the further changes to the NMW to ensure they do not mismanage the increases due in October this year.
New Statutory Figures
The annual increase in compensation limits has been announced. The new limits are applicable where the event that gives rise to the award or payment occurs on or after 6th April 2016 and are:
- £479.00 – the maximum amount of a week’s pay for calculating statutory redundancy pay and the basic award; (up from £475.00)
- £14,370.00 – the maximum statutory redundancy payment or basic award, i.e. 30 weeks; and
- £78,962.00 – the maximum compensatory award which can be made for unfair dismissal (up from £78,335.00) or one year’s gross pay whichever is the lower
These increases mean that the maximum total unfair dismissal award is now £93,332.00, although uplifts can add a further 25%.
It remains very important to follow good practice in your HR procedures; carefully consider all dismissals, and ensure that the handling of appeals is conducted as thoroughly as possible. It is also important to remember that there is no cap at all on the awards that can be made in many cases, including discrimination claims.
Employees may be entitled to receive guarantee payments for up to five days of lay-off in any three-month period. The maximum amount of such a statutory guarantee payment for any one day will remain at £26.00.
From 6th April 2016
Statutory Adoption, Maternity, Paternity and Shared Parental Leave Pay, and Maternity Allowance, will all remain at £139.58 per week.
Statutory Sick Pay (SSP) will also remain at £88.45 per week.
The Lower Earning Limit (LEL) also remains static at £112.00 per week, i.e. £5,824.00 per annum.
We have produced a new useful Information card with these rates. If you would like a copy, please contact us. Our Consultants will be pleased to answer questions on any of the above, or you can find much of the data by clicking on Frequently Asked Questions.