A summary of the main employment related measures in this year's budget is set out below.
Personal tax, NIC and tax credits
The rates of income tax remain unchanged. From 6 April a new higher rate band of 50% was introduced on income in excess of £150,000. In addition, individuals earning more than £100,000 per year will face a tapering reduction in their personal allowance. These changes and other personal tax issues are discussed in our Private Client Budget Briefing.
In the 2009 pre-budget report a 0.5% increase in all forms of Class 1 NIC was announced, to take effect from 6 April 2011. In addition to this proposed increase, a further increase for both employers and employees of 0.5% was announced in the recent budget. Therefore, all Class 1 NIC will increase by 1% on 6 April 2011, unless the policy is reversed by a new government.
The lower earnings limit for Class 1 NIC will increase to £97 per week. The special Class 2 rate for volunteer development workers increases to £4.85 per week.
As announced in the pre-budget report, all elements of the working tax credits, apart from the childcare element, will increase by 1.5%. The limits on eligible childcare costs remain at £175 for one child and £300 for two or more.
The threshold for receipt of the maximum child tax credit will increase to £16,190 from £16,040 with the threshold for the maximum family element unchanged at £50,000.
Employees and directors who are provided with a company car that is made available for private use are generally taxed on this as a benefit in kind. The Finance Bill will introduce legislation reducing the taxable benefit for cars with no or ultra low emissions. If the car does not produce CO2 emissions under any circumstances when driven, there will be a zero benefit and, therefore, no income tax charge. Where a car has an approved CO2 engine emission figure of 75g/km or less, a reduced rate of 5% of the cost of the car will be applied to calculate the taxable benefit. This will take effect from 6 April 2010.
At present, employees at or near the minimum wage cannot normally enter into salary sacrifice arrangements if the result would be to reduce their income below the national minimum wage. Legislation is to be introduced to enable such employees to take advantage of childcare vouchers by way of salary sacrifice.
This will also benefit employers, as salary sacrifice schemes that previously did not qualify for the £55 per week tax exemption, because low paid employees had to be excluded and the schemes could not, therefore, meet the requirement to be 'generally available to all employees', may now do so.
Pensions tax relief restriction
The Government confirmed that it intends to continue with its policy of restricting the pensions tax relief available for high earners. The restrictions will apply from 6 April 2011. In particular the rate of relief available on pensions contributions made by individuals earning between £150,000 and £180,000 will be subject to a tapered reduction from 50% down to 20%, with a reduction of 1% of relief for every £1,000 of gross income.
Bank Payroll Tax
Announced in the pre-budget report and brought into immediate effect, this tax of 50% is levied on bank bonuses in excess of £25,000 paid before 5 April 2010. To date this tax has proved lucrative, realising in excess of £2bn. Legislation is to be introduced to clarify various issues regarding taxable companies, residence of the employee and the administration of the tax. This tax applies not only to money but also money's worth or a benefit and to 'relevant banking employees'.
Legislation is to be introduced which will entitle HMRC to demand financial security from employers where amounts due under PAYE and NIC are seriously at risk. The regulations will also incorporate the employer’s right to appeal against the security and/or its amount. The measures will introduce a new criminal offence where a person required to give security fails to do so. HMRC are to consult with interested parties over a 12-week period.
09 April 2010