Here is our summary of some of the key issues from the Chancellor's 2016 Autumn Statement announced on 23 November 2016.
- Under the current law, termination payments up to £30,000 are free from income tax and National Insurance Contributions ("NICs") and all termination payments (even above £30,000) are free from employer's National Insurance Contributions.
- From April 2018 this will change. Termination payments over £30,000, which are subject to income tax, will also be subject to employer's NICs.
Payments in Lieu of Notice ("PILONs")
- Under the current law, a payment on termination of employment made in lieu of a notice period is subject to income tax and NICs if the employee's contract of employment contains a clause permitting the employer to make such a payment (a PILON clause). If there is no such PILON clause, then in some cases the payment can be paid as damages for breach of contract and is not subject to income tax or NICs if it falls within the £30,000 threshold.
- From April 2018, income tax and NICs will need to be paid on any termination payment in respect of the employee's basic salary that would have been received during any unworked notice period, regardless of whether there is a PILON clause in the employee's contract.
- This is a departure from the government's original intention that payments in respect of salary or benefits which the employee would have received during their notice period would be subject to income tax and NICs.
- The tax and NICs advantages of salary sacrifice schemes will be removed from April 2017 (i.e. the sacrificed pay will be subject to tax and NICs).
- However, this is subject to some fairly major exemptions relating to:
- pensions (including advice);
- cycle-to-work; and
- ultra-low emission cars.
- All arrangements in place before April 2017 will be protected until April 2018 and arrangements in place before April 2017 for cars, accommodation and school fees will be protected until April 2021.
Personal Allowance and Higher Rate Threshold
- For 2017/18, the Personal Allowance will increase from £11,000 to £11,500.
- The Higher Rate Threshold (above which 40% income tax is payable) will increase from £43,000 to £45,000.
- From April 2017 the NIC secondary threshold (above which employer NICs are payable) and the NIC primary threshold (above which employee NICs are payable) will be aligned.
- As a result, both employees and employers will start paying NICs on weekly earnings above £157. This will mean that employers will start paying NICs at a lower level of remuneration.
National Minimum Wage ("NMW")
- The government has confirmed that from April 2017 the NMW will increase
- For those aged 25 and over from £7.20 per hour to £7.50.
- For 21 to 24 year olds from £6.95 per hour to £7.05
- For 18 to 20 year olds from £5.55 per hour to £5.60
- For 16 to 17 year olds from £4.00 per hour to £4.05
- For apprentices from £3.40 per hour to £3.50
- The government has also announced further investment of £4.3 million per year to strengthen enforcement of the NMW.
Employee Shareholder Status ("ESS")
- ESS was introduced in 2013 to give employees income tax and capital gains tax and NIC reliefs in respect of shares acquired by reason of their employment in return for which they gave up certain employment rights. Take up on the scheme was reportedly very low.
- The advantages of using ESS schemes will be removed for new agreements entered into on or after 1 December 2016. This effectively means that no further issues of ESS shares will be possible.
- The tax relief applying to ESS shares that have already been issued will remain unaffected.