UK Budget 2017: Key payroll points
In a UK Budget that offered few surprises, the stand-out element was the Chancellor’s prediction that average earnings in 2022 are likely to remain lower than in 2008.
In a UK Budget that offered few surprises, the stand-out element was the Chancellor’s prediction that average earnings in 2022 are likely to remain lower than in 2008 – an admission branded “astonishing” by an independent economic thinktank.
But Paul Johnson, director of the Institute for Fiscal Studies, also pointed out that other economic forecasts published in the Budget also made for “pretty grim reading”. Earnings growth had been “choked off” since 2014, he said, which meant the country was “in danger of losing [such growth] not just one but getting on for two decades”.
His reaction came in response to productivity, earnings and economic growth forecasts from the Office for Budget Responsibility, which has cut its predictions sharply. It now expects the economy to grow by 1.5% this year, down from a previous forecast of 2% and predicted that growth would remain weaker than previously thought over the next four years.
Here are some of the key points of the Budget from a payroll perspective:
As for 6 April, 2018, the mandatory National Minimum Wage (NMW) will rise from £7.50 ($9.98) to £7.83 ($10.42) per hour for workers aged 25 and above. Employees who are between 21 and 24 years of age will get an increase to £7.38 ($9.82) per hour, up from £7.05 ($9.38).
For staff members who are aged between 18 and 20, the NMW will be boosted to £5.90 ($7.86), while those aged 16 to 17 will receive £4.20 ($5.59), up from £5.60 ($7.46) and £4.05 ($5.39) respectively.
Finally, apprentices who are either under 19 years of age or are in their first year of apprenticeship of any age will obtain £3.70 ($4.93) per hour, up from £3.50 ($4.66) per hour.
The UK’s standard personal allowance, which is the amount of tax-free income an employee with a salary of up to £100,000 ($133,050) can earn, will rise to £11,850 ($15,766), up from £11,500 ($15,303) from April 2019.
The annual income tax threshold for the higher rate of personal income tax, meanwhile, is to increase to £46,350 ($61,673) from £45,000 ($59,882).
The UK government also said it was “committed” to further increasing the standard personal allowance to £12,500 ($16,635) and the higher rate threshold to £50,000 ($66,540) by 2020.
As for proposed changes to National Insurance Contributions (NIC), which include treatment of termination payments and the elimination of Class 2 NICs, these will be delayed until 2018 to provide the UK government with more time to clarify the details. But it is understood that employers will retain primary responsibility for deducting NICs from salaries or wages through the Pay as You Earn system and for paying the required sums to HMRC.
Taxation of benefits
The Chancellor Philip Hammond spoke about proposals to simplify the tax treatment of training and subsistence costs when using Her Majesty’s Revenue & Customs’ (HMRC) benchmark scale rates in the UK or overseas scale rates when not.
To this end, a consultation is expected next year on making tax relief more readily available for employees and self-employed workers when they incur costs on work-related training. Current rules only provide tax relief when employers pay for or reimburse training costs, but not if such costs are borne by individuals.
Mark Groom, Deloitte’s tax partner, said: “This measure will provide a welcome boost for anyone wanting to train or re-train where they have to fund their personal development themselves.”
With regard to subsistence costs, HMRC has proposed that, as of April 2019, it will no longer require employers to carry out random checks on employees’ receipts if using its benchmark scale rates.
Employers will still need to check receipts if they wish to use their own bespoke scale rates, however. Overseas scale rates, which are currently only concessionary, will be brought into a statutory framework for clarity’s sake.
HMRC also intends to improve its guidance on both travel and subsistence costs and will explain to employers that do not reimburse expenses how to claim tax relief.
“All these measures will be a welcome reprieve for employers,” Groom said. “Previously there was some concern that tax relief would be curtailed where employers do not reimburse expenses. HMRC has now confirmed that is not on their agenda.”
The Budget was flagged heavily as one that would help young people – and a key area in which they are worse off than older people is in their pension prospects.
As a result, Matt Brown, private client partner at Thomas Miller Investment, described it as “disappointing” that the Chancellor had “missed a great opportunity” to tackle the “gross inequality in the tax relief paid to the best off in society against the poorest for whom a decent pension is a distant dream”.
He added that the Chancellor could have levelled the playing field by introducing a “much fairer system of the same tax relief for all”, which would have significantly boosted the pensions of the poorest, while still providing the richest with some tax breaks.
On a brighter note though, for the first time in eight years, the lifetime allowance for pensions will increase – although only in line with inflation of 3% to £1,030,000 from April 2018.
Similarly the triple-locked basic state pension will rise to £125.95 per week and the new single-tier state pension to £164.35 per week from April 2018.
Glyn Bradley, principal in HR consultancy Mercer’s Innovation, Policy and Research team, said: “This was the quietest Budget for pensions in many years, and pension savers will breathe a sigh of relief that the tax relief and various allowances for pension saving were not cut again.”
After mounting criticism, the government promised to keep the Apprenticeship levy and how it operates under review, but Carolyn Fairbairn, director general of employer lobby group the CBI attested that while “helpful”, the commitment did “not go far enough”.
“To really deliver more growth and higher pay, the levy needs to fund more of the training that businesses need as soon as possible,” she warned.