HMRC started writing to some company owners from 4 February 2024 to inform them that they may have underdeclared dividend income. This is one of HMRC’s…
This afternoon the Chancellor, Jeremy Hunt, presented his Autumn Statement. The result of which will produce a much-needed income boost for over 29 million employees and self-employed workers. However, in respect of payroll taxes, it appears that it is the country’s employers who have been left out of the savings.
The Chancellor used a lot of catchy phrases about rewarding employees for the ‘energy of people’ and ‘making work pay’, whilst supporting the ‘people who get up early’. Along with the government’s ‘Back to Work’ plan, it appears to be an Autumn Statement to encourage people to stay in work, whilst driving people back into work – “Good Health is Good for Work and Good Work is Good for Health”, to quote the opening line of their Back to Work plan. Money has certainly been set aside to encourage people back into work through its Restart programmes, Talking Therapies, Individual Placements and Support, to name just a few, in addition to sanctions for those who don’t engage, and employers will be playing their part in this.
National living wage
From 1 April 2024, the National Living Wage (NLW) will increase by 9.8% to £11.44, which is a significant increase. As well as that, the age threshold to which the NLW applies to will be lowered from 23 to 21 years old. This represents an increase of over £1,800 to the annual earnings of a full-time worker on the NLW and is expected to benefit over 2.7 million low paid workers. The NLW has rapidly increased over the last few years, and today’s announcement did not buck that trend. The previous annual rate rises rising from £8.92 to £9.50, and then to the current rate of £10.42.
National insurance for self-employed workers
The government is reducing the main rate of Class 4 self-employed NICs from 9% to 8%. It is also abolishing Class 2 self-employed NICs, a weekly rate which is paid irrespective of earnings. The government estimates these changes will benefit around 2 million self-employed individuals and result in an average self-employed person on £28,200 saving £350 in 2024-25. These changes will come into effect from 6 April 2024.
The government will set out next steps on Class 2 reform next year. As part of this reform the government will protect the interests of lower paid self-employed people who currently pay Class 2 NICs voluntarily to build entitlement to certain contributory benefits including the State Pension.
National insurance for employees
The government has also announced they will be cutting the main rate of Class 1 employee NICs from 12% to 10%. This will provide an increase in take home pay for 27 million working people, with the Government estimating that a worker on £35,400 would receive an additional £450 in 2024/25. Unlike the changes to the reduction in the Class 4 NI rate for self-employed workers, these changes will come into effect from 6 January 2024. The aim of this is to incentivise people in work and make sure it pays and it brings the lowest combined tax rate of 30% (basic rate tax at 20% and NIC at 10%) since the 1980s. The cut is welcome but the fiscal drag of frozen personal tax allowances and no changes to the NIC thresholds, mean that some of the savings may quickly disappear.
Where are the employer savings?
If you have found them, then please let us know! There were of course other measures announced for employers in respect of business rates and full expensing of capital expenditure. However, from a purely payroll/employment tax outlook, employers have been left out. It was a bit surprising to hear that there was no equivalent employer’s NIC reduction, especially in light of the NLW increase. For employers who have staff paid at the NLW, from next April it will not only cost an additional £1.02 per hour per employee, but there is the additional whammy of 13.8% employer’s NIC on top of that. Some employers are likely to be significantly affected by these changes.
For employers with staff paid well in excess of the NLW, it will be ‘as you were’, with no additional payments to make, but no savings either. Given economic upheaval of the last few years, a tax-neutral outcome from an Autumn Statement is not the worst thing in the world.
An interesting point to note of course, is that employees will save 2% on their NI deductions and self-employed workers only 1% (albeit self-employed workers will no longer pay £3.45 per week as well). Is this also another stealthy way for the government to align the income tax and NIC implications of employment v self-employment? With NLW continually on the increase, will that have an impact on a worker’s choice to be self-employed/employed, where a full-time permanent contract can offer a stable and guaranteed income?
Other employment tax updates
- Off-Payroll Working (IR35) – The government will legislate to allow HMRC to reduce the PAYE liability of a deemed employer to account for taxes paid by a worker and their intermediary on payments received where an error has been made in applying the off-payroll working rules.
- Construction Industry Scheme (CIS) reform – The government will introduce reforms to the Construction Industry Scheme, including adding VAT as part of the Gross Payment Status (GPS) compliance test, giving HMRC more power to remove GPS immediately in cases of fraud.
- The government wants to collaborate with employers to help them play their part in preventing their employees from becoming inactive due to ill health. Provision of high-quality Occupational Health (OH) is important for helping employees with disabilities and long-term health conditions to stay in work. Following the recent consultation, the government will meet employers’ requests for clearer guidance and support by establishing an expert group to develop a new voluntary OH framework in Great Britain. The government will also work with employers and business representatives to develop and promote best employment practices for employees with health and disability issues. We assume this will include some tax exemptions for the provision of some of these costs.
- The Chancellor also announced he will consult on “pot for life” pensions reforms. The government will consult on giving pension savers a “legal right to require a new employer to pay pension contributions into their existing pension”. The government is launching a call for evidence on a lifetime provider model to simplify the pensions market by allowing individuals to move towards having one pension pot for life, and on a potential expanded role for collective defined contribution (CDC) schemes in future.
For more analysis, visit our Autumn Statement hub.