Posted by Lee Hellingsworth on November 5, 2018
Senior Manager of Bishop Fleming’s Payroll Service, Lee Hellingsworth, takes a look at how the autumn Budget 2018 affects employers.
Before moving into the details, I must say that it is not surprising that more and more employers want to outsource their payroll function as the law around employment taxes becomes ever more complex. The administrative burden has increased markedly over recent years.
The Chancellor’s announcement that he is going to roll out the IR35 off-payroll working rules to the private sector from 6 April 2020 will have many medium-sized and large employers worried that they will be responsible for assessing the employment status of any contractors they engage and putting many onto the payroll for the first time, with increased employers’ National Insurance costs as a result.
For the moment there are no plans to force these rules on employers who meet the small company exemption criteria, which is welcome. There had been fears that the measure would hit employers from next April, so the extra year’s delay will at least provide more preparation time.
It is also worth noting though that the rules will apply to any contracting arrangements already in place at 6 April 2020, so any new contracts beginning after 6 April 2019 will potentially be affected.
It does strike me though that this Budget has one eye on a possible general election, but perhaps not before a Brexit deal is finally concluded with the EU. The accelerated increases in the Personal Allowance and Higher Rate Threshold brought forward from 2020 to April 2019 highlight this.
Alongside this sweetener for taxpayers, the Chancellor announced increases to the National Living Wage (NLW) and National Minimum Wage (NMW) from April 2019, with all bands rising significantly beyond the current rate of inflation.
The flip side of these increases for many of our clients in the tourism and care sector is the added financial strain on employment costs. Most workers earning the minimum wage will receive a 4.9% pay increase.
How do employers respond to this – do they absorb the cost to have their margins squeezed even further, or do they try and pass it on to their clients and customers?
Other interesting points to note from the Budget include the government’s focus on the much-criticised Apprenticeship Levy in a bid to increase the number of new apprentices. As I pointed out in my October article, the new ability to transfer up to 25% of an organisation’s funds to pay for apprenticeship training in their supply chains is a nice boost, though the underlying system remains overly complex and needs reform.
As regards the £3,000 Employment Allowance, there were fears that this could be scrapped altogether in the Budget. That didn’t happen, but it will face new restrictions from April 2020 so that only organisations with National Insurance Contribution (NIC) bills below £100,000 can claim, causing issues for those with NIC bills above the threshold.
The restriction could also cause administrative nightmares for employers who can no longer claim, as they could all too easily make an underpayment of the £3,000 to HM Revenue & Customs (HMRC), which will then come chasing for the money.
Employers will have to start paying employers’ NICs on termination payments from April 2020 when legislation will align NICs with rules already in place for income tax.
From 6 April 2020, the first £30,000 of qualifying termination payments will be free of employers’ NICs, with any excess chargeable to NICs at the usual rate (though it will remain free from employees’ NICs).
I can see a number of employers missing this, causing an underpayment to HMRC and resulting in penalties.
I note that Parental bereavement leave and pay is introduced from April 2020, and not before time, although a two-week package is nowhere near sufficient time given the reasons for why this would be claimed.
A positive measure that I support is the government’s plan to introduce a pensions dashboard, enabling people to readily see in one place all the information relating to the various pension schemes they have or have had, including the state pension.
This is particularly useful for those who have had several employments and pension schemes throughout their careers. To see the key information on all of the schemes in one central place for an individual, to assist with retirement planning, will be extremely useful. It will also act as a call to action for those who need to do more for their retirement.
For more about what was covered in the Budget, check out our Budget page.
If you would like to discuss the implications of the Budget for your payroll and employment costs, please contact a member of our Payroll Services team.