Budget 2016: Issues For Employers

Summary and implications

We have set out below the main employment-related issues coming out of Budget 2016. The devil may yet be in the detail of initiatives, but this alert should serve to make sure employers know what to expect going forward.

Termination payments

Employers often take advantage of certain termination payments being exempt from both employee and employer National Insurance Contributions (NICs) and the first £30,000 not being subject to income tax. Termination payments are often structured in a way to minimise the tax and NICs due but the complex rules can lead to misunderstandings and manipulations.

From April 2018, the government will tighten the scope of the exemption to prevent payments from being manipulated to avoid tax and NICs. The intention is that employer NICs will be payable on payments above £30,000 that are subject to income tax. The first £30,000 of a termination payment will remain exempt from income tax and the full termination payment will be outside of the scope of employee NICs.

Salary sacrifice

The government is considering limiting the range of benefits that allow employees to take advantage of salary sacrifice because of its concerns about the growth of such schemes.

No information has been provided on which schemes are causing the concern but the government has committed to its support to salary sacrifice schemes for pensions, childcare and health-related benefits such as Cycle to Work.

Workers providing services to the public sector through their own limited company

The government believes that the wrong tax treatment of workers providing services through their own limited companies is costing the taxpayer £440m per annum. To address this, the government is taking measures to ensure that individuals who work through their own limited company but are undertaking jobs that would ordinarily mean they are employees of the business they are working for are taxed appropriately.

From April 2017, where the public sector engages a worker through their own limited company, that body (or the recruiting agency if the public sector body engages through one) will be responsible for ensuring the correct tax is paid.

The government has acknowledged that the rules on tax in this particular area are not clear and consultation will begin on a simpler set of tests and online tools that will provide clear answers to the bodies that are responsible for determining the correct tax treatment.

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