November 24, 2016
The Autumn Statement included a number of measures relating to employment, including changes to the tax treatment of ‘employee shareholders’ and a restriction of the benefits available in salary sacrifice schemes.
‘Employee shareholder’ status (ESS) was introduced in September 2013 by George Osborne as a new category of worker status. Employee shareholders can give up a number of statutory employment rights, such as the right to a redundancy payment and protection from unfair dismissal, in return for a minimum of £2,000 of shares in the employer's business. Currently, ESS shares qualify for relief from income tax and restricted relief from capital gains tax . The Government now plans to abolish these reliefs for ESS shares acquired in agreements made on or after 1 December 2016. For arrangements entered into before 1 December 2016, the tax advantages will continue to apply.
The Government says that the removal of ESS tax advantages are in response to evidence that ESS is being used for tax planning. ESS technically remains open for the time being however, the Government intends to close ESS to new users altogether ‘at the earliest opportunity’.
As widely predicted, the Government has confirmed that it is to limit the benefits that attract income tax and national insurance (NI) advantages when provided as part of a salary sacrifice arrangement. The benefits that can continue to benefit from tax and NI relief if provided through a scheme will be limited to enhanced employer pension contributions to registered pension schemes (and pensions advice); childcare benefits (employer-supported childcare and provision of workplace nurseries); cycles and equipment provided under the cycle to work scheme; and ultra-low emission cars. The change will take effect from April 2017. Arrangements in place before that date will be protected until April 2018 or for cars, accommodation and school fees, until April 2021.
The Autumn Statement also confirmed that, as announced at the 2016 Budget, the exemption from income tax and NI for termination payments up to the current limit of £30,000 will be retained but employer NI contributions will be payable on payments above this amount. The Government appears to have dropped its controversial proposal to tax certain ‘post-employment’ payments as earnings.
National Living Wage
The minimum wage for over 25s will rise by 4 percent from April next year – from £7.20 to £7.50 per hour. The figure – recommended by the independent Low Pay Commission – is 10p lower than some had been expecting because average wages have been lower.