In today's Budget, the government has announced a number of measures that will have an impact on employers.

However, the highly anticipated changes to the way that termination payments are taxed did not materialise. Since 1988, employers have been able to pay up to £30,000 of ex-gratia termination payments, tax free. Whilst income tax has been payable on any excess above £30,000, ex-gratia payments have not attracted National Insurance Contributions (NICs).

In July 2015, the government floated the idea of removing the £30,000 tax free allowance but in today's Budget, the Chancellor simply announced that employer NICs would now also be due on payments above £30,000, which are already subject to income tax. Mr Osborne also confirmed that the first £30,000 of a termination payment will remain exempt from income tax and the full payment will be outside the scope of employee NICs.

Chris Holme, Partner at Clyde & Co comments:

"It has always seemed bizarre that although income tax became payable on amounts over £30,000, national insurance contributions did not. The announcement that employers' NICs will now be payable on these amounts seems quite logical. Unfortunately it will lead to an increased cost for employers, but we can't see this having a huge impact on the number of settlements because the very important tax break for the employee (the first £30,000) it seems will remain – and that is to be welcomed"

In addition to introducing employers' NICs on termination payments over £30,000, the main points of interest to employers are:

  • The 'main rate' National Minimum Wage, which after the introduction of the Living Wage on 1 April 2016, applies to workers aged between 21 and 24, will increase to £6.95 in October 2016.
  • The government is going to launch a consultation in May 2016 on how to implement an extension of Shared Parental Leave and Pay to working grandparents. Graham Mitchell, Partner at Clyde & Co comments: “Whilst it's good news that the Government is looking at supporting parents (and grandparents) in employment who care for children, the simple fact is that there has not been much take up of Shared Parental leave or other forms of Leave such as Parental leave.”
  • The government plans to ensure that individuals who gain tax benefits from working through personal service companies pay a 'fairer' share of tax. Essentially, this is likely to be a crackdown on the use of personal service companies to avoid tax.
  • HMRC approved employee salary sacrifice schemes are likely to be limited to pensions, childcare and health-related benefits.
  • Further legislation will be introduced to clamp down on disguised remuneration tax avoidance schemes, which seek to take employee remuneration outside the scope of income tax and national insurance
  • Class 2 National Insurance contributions will be abolished for self-employed people. However, Phil Norton, Legal Director at Clyde & Co points out that that this is not as significant a change as it may seem and in reality, will reduce taxes by £2.80 a week, so is really just an administrative change rather than anything substantial.
  • Further legislation will be introduced to clamp down on disguised remuneration tax avoidance schemes, which seek to take employee remuneration outside the scope of income tax and national insurance
  • The Employee Shareholder Status was introduced by the government as a way of allowing employees to take a tax benefit on shares in return for relinquishing some of their employment rights. There have been concerns that it enables benefits to be received in excess of what is proportionate and fair and therefore a lifetime limit of £100,000 on gains eligible for capital gains tax exemption will apply.
  • Finally, the government announced a new flexible Lifetime ISA allowing those under the age of 40 years old to save up to £4,000 per year, until the person reaches the age of 50. The government will match 25% of the person's contribution. The Lifetime ISA can be put towards the purchase of a property or the funds can be accessed on retirement. Mark Howard, Pensions Partner at Clyde & Co comments that this could potentially encourage employees to opt out of pension auto-enrolment, to invest in the Lifetime ISA instead, causing an administrative headache for employers.

In short, today's announcements will not have as significant impact for employers as we had anticipated: this Budget is very much business as usual for employers.