Autumn Statement – What does it mean for you?

In his first Autumn Statement as chancellor, Philip Hammond has unveiled a number of measures and amendments that will impact both individuals and business across the UK.

Many of these will depend on the circumstances and incomes of the people or organisations affected, and so the following is a breakdown of what is changing, when it is changing, and how it will affect you.

PERSONAL TAX

 Personal Allowance and Higher Rate threshold

There had been many calls before the Autumn Statement for the Chancellor to abandon his predecessor’s promise to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of this parliament in 2020, claiming that the main beneficiaries of these changes are not the lowest paid, but those on higher levels of income.

Despite this, the chancellor confirmed that the government will indeed meet its commitment. In the shorter term, this means that the personal allowance will rise from the current £11,000 to £11,500 from next April, and the higher rate threshold will increase from £43,000 to £45,000.

National Insurance Contribution thresholds

Class 1 National Insurance Contribution (NIC) secondary (employer) and primary (employee) thresholds will be aligned from April 2017, which brings a rare bit of welcome simplification. The current employer threshold is £156 per week and the employee threshold is £155 per week – both will increase to £157 per week from April 2017.

It had been announced in this year’s Budget that Class 2 NICs will be abolished from April 2018, simplifying National Insurance for the self employed. The Autumn Statement confirmed that following the abolition of Class 2 NICs, self employed contributory benefit entitlement (for state pension and benefits purposes) will be accessed through Class 3 and Class 4 NICs.

EMPLOYMENT TAXES

Salary sacrifice for benefits in kind

The Government has previously voiced its concern about the rise of salary sacrifice schemes in recent years. In the Autumn Statement press releases, it comments that “the government recognises that employers can choose to remunerate their employees in a range of different ways in addition to a cash salary, and it believes that the tax system treats these different forms of remuneration inconsistently and sometimes more generously”.

Back in August, HMRC issued a number of consultation documents, one of which outlined its approach to tackling salary sacrifice arrangements that involve benefits in kind (BIK). The outcome of that consultation has now been confirmed in the Autumn Statement.

The August consultation documents explained that HMRC was aiming to tackle what it perceived as abuse of the rules – swapping taxable salary for tax-free BIKs (such as company mobile phones, workplace car parking or employer-provided gyms).

HMRC’s proposed approach was to bring in new rules from April 2017 to subject any BIKs provided by way of salary sacrifice to both income tax and Employer’s Class 1A NIC (even if it is normally exempt from tax and NIC) at the greater of:

  • the amount of salary sacrificed; and
  • the BIK cash equivalent/P11D value (if any)

In recent years, there has been growth in low-emission company cars being purchased for employees via salary sacrifice schemes, and the proposals will clearly hit these schemes hard. Many commented during the consultation period that the proposed changes conflict somewhat with the government’s aim to encourage low emission cars through tax incentives. Affording cleaner, low emission cars is often only possible for some employees thanks to the availability of such salary sacrifice schemes.

HMRC confirmed in the consultation that certain benefits will remain exempt from tax and NIC, making good on their promise to protect these in the Budget:

  • Employer pension contributions
  • Employer-provided pensions advice
  • Employer-supported childcare (including childcare vouchers)
  • Cycles and cycling equipment (that qualifies under the cycle-to-work rules)

Following the consultation, the Autumn Statement now introduces further protection from these new rules, and allows existing arrangements more time before they are caught:

  • Ultra low emission cars will be exempt (i.e. cars with CO2 emissions below 75g/km)
  • All arrangements in place before April 2017 will be protected for up to a year until April 2018
  • Arrangements for cars, accommodation and school fees will be protected for up to 4 years until April 2021

Clearly, the representations made during the consultation period have led HMRC to extend the introduction for existing salary sacrifice schemes by one year, and grant a longer period of grace for some of the more commonplace schemes.

Employers with existing schemes can breathe a sigh of relief that many existing salary sacrifice arrangements will not be caught by the changes, but they will need to take advice when considering their future options.

PAYE Settlement Agreement (PSA) simplification

Another of the August consultation documents was HMRC’s plans to simplify the PSA process. My blog in August covered the proposals in more detail. The Autumn Statement confirmed that these changes will take effect from the 2018/19 tax year.

National Living Wage

Introduced by George Osborne at £7.20 per hour from April 2016, the government promises to raise the National Living Wage (NLW) rate to £9 per hour by 2020. He confirmed that the NLW will increase from £7.20 per hour to £7.50 per hour from April 2017, and reckons this will be worth more than £500 to a full-time worker over the age of 25.

This is slightly below the £7.60 estimated by the independent Office for Budget Responsibility (OBR), so there will need to be greater acceleration of the NLW between next April 2017 and 2020 to meet the £9 per hour target.

Help and advice

Although some of the measures will not be implemented until next April, it is important to be prepared for any changes that could affect your financial affairs.

Garbutt + Elliott’s team of experts provide advice and information on a range of financial matters, helping clients to save money and maximise their income.

To find out how you or your business will be affected by the Autumn Statement, contact Richard Whitelock or our dedicated team of experts at enquiry@garbutt-elliott.co.uk.