Autumn Statement – Employment Taxes Update

Chancellor’s Autumn Statement 22 November 2023

Employment Taxes

National Minimum Wage

The National Living Wage (NLW), is to increase by more than a pound to £11.44 per hour from April next year. It is currently £10.42 an hour for workers over 23, but from April 2024 as previously announced, the rate will also apply to 21 and 22-year-olds for the first time.

It means a full-time worker aged 23 on the NLW would receive a rise worth £1,800 a year. A 21-year-old would see an effective £2,300 annual rise.

Other age groups, including apprentices, will also get a pay increase.

National Insurance news

Employee’s rate of NICs reduced by 2%

The government will cut the main rate of Class 1 employee NICs from 12% to 10% from 6 January 2024. This will provide a tax cut for the average worker on £35,400 or over £450.30. The Chancellor gave examples of those who would benefit for 2024-25:

  • an average full-time nurse on £38,900 will receive an annual gain of over £520;
  • an average teacher on £44,300 will receive an annual gain of over £630;
  • an average police officer on £44,300 will receive an annual gain of over £630;
  • a typical junior doctor on £63,000 will receive over £750; and
  • working families with two earners on the average income will receive a gain of £900.

No change to NIC thresholds – employees and employers

NIC Thresholds, however, will be frozen at 2023-24 level until 2024-25:

Lower Earnings Limit (LEL)£6,396 per annum (£123 per week)
Primary Threshold£12,570 per annum (£242 per week)
Secondary Threshold£9,100 per annum (£175 per week)
Upper earnings limit£50,270 per annum (£967 per week)

NIC relief for veterans extended by one year

The government is extending the NICs relief for employers of eligible veterans for one year. The relief means organisations pay no employer NICs on annual earnings up to £50,270 for the first year of a qualifying veteran’s employment in a civilian role.

Abolition of class 2 NICs – self-employed workers

From 6 April 2024, self-employed people with profits above £12,570 will no longer be required to pay Class 2 NICs but will continue to receive access to contributory benefits including the State Pension.

Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits including the State Pension through a National Insurance credit without paying NICs as they do currently.

Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension, will continue to be able to do so.

The government will set out next steps on Class 2 reform next year. As part of this reform, they have stated that they 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.

Class 4 NICs rate reduced by 1% – self-employed workers

From 6 April 2024, the government will also cut the rate of Class 4 NICs rate for self-employed people from 9% to 8%.

For those paying voluntarily, the government will also freeze Class 2 and Class 3 National Insurance contribution (NIC) rates at their 2023- 24 levels in 2024-25:

  • Class 2 – £3.45 per week
  • Class 3 – £17.45 per week

Small Profits Threshold frozen for sole traders

The Small Profits Threshold will be frozen at 2023-24 levels, (£6,725) in 2024-25.

Tougher benefits rules

Under the government’s Back To Work Plan, benefit claimants who fail to find work for more than 18 months will have to undertake work experience placements. If they refuse they will lose access to their benefits for a period.

Off-payroll working (IR35) offsets

As the law currently stands if a ‘deemed employer’ (e.g., a public body) incorrectly pays an intermediary without deducting and accounting for tax and National Insurance Contributions under the off-payroll working (IR35) rules it is not possible to offset any liabilities sought from that deemed employer even where the intermediary has accounted for their own tax/NIC.

However, as expected, it was confirmed that legislation will be introduced in Autumn Finance Bill 2023 to amend ITEPA 2003 to introduce a power that will allow new regulations to be made to allow deemed employers an offset in their tax. This will be done in the following way:

  • in cases where the deemed employer of an individual who worked via their own intermediary would be liable to pay an amount under PAYE regulations in respect of an engagement, and an amount of income tax or corporation tax is estimated to have already been paid or assessed in relation to the engagement, the amount will be treated as having been recovered from the individual or intermediary, and that amount will not be recoverable from the deemed employer
  • this amount treated as having been recovered will be the best estimate that can reasonably be made by an officer of HMRC in respect of the income tax or corporation tax already paid or assessed
  • provision will be made to prevent a person making a claim for the repayment of, or a claim for relief in respect of, deducting, or setting off the amount treated as having been recovered
  • the provisions will be in respect of deemed direct payments made on or after 6 April 2017

In anticipation of these changes coming into effect, HMRC has already permitted settlements arising from compliance reviews to be paused. This is likely to result in significant reduction in liabilities sought from the end client organisation. Therefore, if your organisation is likely to be affected by these changes, please do speak to us.

For the avoidance of doubt, the current law already allows an offset where the engagement is with an individual sole trader.

Investment in HMRC debt management capability

The government announced that it is investing a further £163 million to improve HMRC’s ability to manage tax debts. It says that this will allow HMRC to better distinguish between those who can afford to settle their tax debts, but choose not to, from those who are temporarily unable to pay and need support. HMRC will also expand its debt management capacity to support both individual and business taxpayers out of debt faster and collect debts that are due.

Improving the data HMRC collects from its customers

As mentioned at our recent Employment Taxes Forum, the government is legislating in the Autumn Finance Bill 2023 to require employers, company directors, and the self-employed to provide new or improved data to HMRC to enable better outcomes for citizens and businesses. These changes will take effect from the tax year 2025-26. We understand that this will include details of contractual hours worked where those contractual hours are reasonably stable (i.e. not a zero-hours contract) and actual hours worked for hourly rate employees.

Lifetime Allowances Abolition

As already announced in the previous Budget, the government will legislate in the Autumn Finance Bill 2023 to remove the Lifetime Allowance. The legislation will clarify:

  • the taxation of lump sums and lump sum death benefits;
  • the application of protections
  • the tax treatment for overseas pensions;
  • transitional arrangements; and
  • reporting requirements.

This will take effect from 6 April 2024.

Local Government Pension Scheme (LGPS)

Following a consultation, the government confirms that LGPS guidance will be updated to implement a 10% allocation ambition for investments in private equity, which is estimated to unlock £25bn, as well as a March 2025 deadline for the accelerated consolidation of LGPS assets into pools and setting a direction towards fewer pools exceeding £50bn of assets under management.

Lifetime Provider Model and small pots consultation response

A call for evidence is being launched on a lifetime provider model to simplify the pensions market by allowing individuals to move and have one pension pot for life. The government will also introduce the multiple default consolidator model to enable a small number of authorised schemes to act as a consolidator for eligible pension pots under £1,000.

Reforming requirements to file a Self Assessment tax return

The government announced that it will no longer require individuals with income taxed only through Pay As You Earn to file a Self-Assessment return from 2024-25.

Van Benefit Charge and Car & Van Fuel Benefit Charges

The government announced will maintain the Van Benefit Charge and the Car & Van Fuel Benefit Charges at 2023-24 levels for 2024-25. The Van Benefit Charge is currently £3,960 and the Van Fuel Benefit Charge is currently £757. Please note that no charge arises where there is no private use permitted/undertaken or it is subject to the restricted private use condition. Broadly, this applies when the van is used predominantly for business travel, but the employee is allowed to use the van for home-to-work travel (as opposed to general private use).

The Car Fuel Benefit Charge multiplier is currently £27,800. Whilst public bodies do not generally allow employees with provided cars to claim the cost or be provided with private fuel, a charge can be inadvertently incurred where mileage records are not sufficiently detailed to prove that only the costs of genuine business mileage were met.

Construction Industry Scheme – New Reforms

On 27 April 2023, HMRC announced a 12-week consultation period ending on 20 July 2023 to seek views on possible reforms to the Construction Industry Scheme (CIS).  All the plans were tax anti-avoidance measures dealing specifically with fraud in the construction industry sector.

HMRC has confirmed that the following changes will take effect from 6 April 2024:

  • The inclusion of VAT compliance to the Compliance Test for Gross Payment Status (GPS). Currently, VAT is not considered when applying the compliance test for subcontractors so even if VAT obligations are not being met, they could still be given GPS.
  • The removal of the majority of landlord-to-tenant payments from the scope of the CIS. Currently, where a landlord carries out works that are the responsibility of the landlord, the payments are within CIS. If the works are funded by the landlord for the tenant’s benefit, the payments qualify as ‘reverse premiums’ and therefore not within CIS. There is a problem in distinguishing between these two types of payments. This could result in a cash flow issue for the tenant where CIS tax is deducted. Similarly, landlords who are unsure if the payment is indeed a reverse premium, will prudently choose to operate CIS rather than having to account for underpaid tax in the future.
  • Digitalising applications for CIS registration. Apparently, many fraudulent subcontractors apply for GPS via telephone. From April 2024, applications for GPS will have to be made
  • Bringing forward the first review of a GPS holder’s compliance history from 12 months after application to 6 months, reverting to 12 months thereafter.

Other proposals mentioned in the CIS reform consultation are not being taken forward at this time.

Apprenticeships

The government announced its commitment to Apprenticeships by committing a further £50 million for a 2-year pilot to explore ways to stimulate training in growth sectors and address the barriers to entry into high-value apprenticeships.

This is just another reminder to make sure that all organisations are getting the most from the Apprenticeship Levy they pay.

If you are an employer with a pay bill of more than £3 million, you’re required to pay the apprenticeship levy. You can manage funds using the apprenticeship service and spend it on training and assessing your apprentices.

The government will apply a 10% top-up to the funds you have in your account.

It is no longer simply a tool used to allow unskilled/entry-level school leavers to enter the workforce.  Apprenticeships provide opportunities for an existing workforce to continue their education. Using the apprenticeship levy to train existing staff has many benefits.

Read the VAT updates from the Autumn Statement

Angela Ferguson

Written by Angela Ferguson

Angela has spent close to 30 years within taxation, having trained within the big 4 for most of her career. She spent 10 years at EY as a Director in their Manchester office managing the Employment Tax and NMW teams. Prior to joining PSTAX Angela was the Head of Employment Taxes at Saffery Champness for 3 years, growing and developing the team and service line for the firm.

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