The Budget Statement, announced by Philip Hammond, Chancellor of the Exchequer, revealed off-payroll working rules will be extended to the private sector from April 2020.
Here is a round-up of the headline changes made in the Budget, affecting payroll and pensions:
Following positive forecasts from the Office for Budget Responsibility, the Chancellor announced the Personal Allowance for tax-free income to be £12,500 and the Higher Rate Threshold (HRT), when higher earners start to pay 40 percent tax, to be £50,000. These changes will take effect a year earlier than planned - for the 2019-20 tax year and remain in force for the 2020-21 tax year.
From April 2021, both the Personal Allowance and HRT would return to annual increases that are in line with consumer price inflation (CPI) - as currently legislated for.
National Living Wage
The Low Pay Commission (LPC) recommendations were accepted in full and are on target to achieve a National Living Wage rate of 60 percent of median earnings by April 2020.
The recommendations include:
The NLW to increase from £7.83 to £8.21;
The 21-24 rate from £7.38 to £7.70;
The 18-20 rate from £5.90 to £6.15;
The 16-17 rate from £4.20 to £4.35;
The apprentice rate from £3.70 to £3.90.
Building on the Autumn Budget 2017 announcement, that Housing Benefit claimants will receive an additional payment providing a fortnight’s worth of support during their transition to Universal Credit, the government will extend this provision to cover the income-related elements of Jobseeker’s Allowance and Employment and Support Allowance, and Income Support. This will be effective from July 2020.
The amount that households with children, and people with disabilities, can earn before their Universal Credit award begins to be withdrawn, known as the Work Allowance, will be increased by £1,000 from April 2019.
From April 2019 levy-paying employers will be able to transfer up to 25 percent of their funds to pay for apprenticeship training in their supply chains. The co-investment rate for smaller businesses taking on apprentices will halve from 10 percent to face percent.
The government will also provide up to £5m to the Institute for Apprenticeships and National Apprenticeship Service in 2019-20, to identify gaps in the training provider market and increase the number of employer-designed apprenticeship standards available to employers. All new apprentices will start on these new, higher-quality courses from September 2020.
The CIPP said it understands the government intends to consult with businesses about further changes to the levy from 2020, following the slow take up and employer criticisms.
Off-payroll working in the private sector
From April 2020 the government will extend reforms to the off-payroll working rules, known as IR35, in the private sector. This follows a consultation held earlier this year following the roll-out of reform in the public sector.
Responsibility for operating the off-payroll working rules will move from individuals to the organisation, agency or other third party engaging the worker.
Small organisations will be exempt, minimising administrative burdens for the smallest engagers. HMRC intend to work with stakeholders through the delivery of another consultation in a bid to provide support and guidance to medium and large organisations ahead of implementation.
The government has decided that for services provided to small businesses, the responsibility for determining employment status and paying the appropriate tax and NICs will remain with Personal Services Companies. Small businesses will not need to consider the employment status or deduct employment taxes from the fees of people they engage in this way.
Nigel Morris, employment tax director at MHA MacIntyre Hudson, said: “We welcome the move to delay implementation until April 2020, and to limit it to large and medium sized businesses - we could never see that the private sector or HMRC would be ready to implement the changes next year. The change of plan also reduces what would have been an unnecessary burden on small businesses.”
Pensions and savings
The Budget confirmed that the Department for Work and Pensions (DWP) will consult, later this year, on the detailed design for the pensions dashboard and on how an industry-led approach could harness innovation while protecting consumers. DWP will work closely with the pensions industry and financial technology firms.
It also confirmed that the DWP will publish a paper setting out the government’s approach to increasing pension participation and savings persistency among the self-employed this winter. This follows the 2017 review of automatic enrolment and will focus on expanding evidence through a programme of targeted interventions and partnerships.
Other changes to pensions included that the lifetime allowance for pension savings will rise to £1,055,000 for 2019-20, in line with CPI and the band of savings income that is subject to the 0 percent starting rate will be kept at its current level of £5,000 for 2019-20.
Lucy Dunbar, partner at law firm Sackers, said: “The budget should be seen as a ‘good news’ story for pensions, with the headline message of no significant changes to pensions tax relief or tax allowances giving welcome stability.”
Hammond has warned that an emergency budget would be needed if Britain leaves the EU in March without a deal. However, Downing Street has said all spending plans in this Budget will go ahead "irrespective" of Brexit.