A Budget focused on alleviating problems
With only a short time in his new role, Chancellor Rishi Sunak focused his first Budget on alleviating the problems caused by the recent spread of COVID-19 and boosting expenditure on infrastructure projects across the UK. Accordingly, the Budget was a relatively subdued affair from an employment tax perspective, with a number of changes already announced such as the increase in the Primary Class 1 NIC Threshold for employees to £9,500, and the roll out of the Off-Payroll Working rules to the private sector.
Annual allowance for pensions
Following much discussion in the media around the impact of the pension allowance tapering rules on public services, particularly the NHS, the two key thresholds which govern the tapering of the annual allowance will each be raised by £90,000. Accordingly, from 2020-21 the ‘threshold income’ will be £200,000 (up from £110,000), so individuals with income below this level will not be affected at all by the tapered annual allowance and can contribute up to the £40,000 annual limit into their pensions – earnings permitting. Furthermore, for those exceeding the ‘threshold income’ the annual allowance will only begin to taper down for individuals with an ‘adjusted income’ above £240,000 (up from £150,000). Whilst billed as a measure designed to support the delivery of public services, the new threshold will apply to all those saving under registered pension plans. It will be particularly welcomed by clinicians working in the NHS where the present position means that where they undertake extra work they can be materially disadvantaged by the effect of tapering. Not least with the spread of COVID-19, this clearly needed to be addressed urgently. At the same time, for those with total income (including pension accrual) over £300,000, the minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from April 2020.
Statutory Sick Pay (SSP)
Building on the previous announcement that SSP will be paid from the first day of sickness rather than the fourth day for COVID-19 cases, the Government has confirmed that it will temporarily extend SSP to cover individuals who are unable to work because they have been advised to self-isolate, as well as people caring for those within the same household who display COVID-19 symptoms and have been told to self-isolate. The SSP rate is currently £94.25 per week, and the Government will support smaller employers (those with fewer than 250 employees) to cope with the extra costs of paying COVID-19 related SSP by refunding these costs in full, subject to certain criteria.
Off-Payroll Working in the private sector
As expected, following the recent conclusion of a review of the reform to the Off-Payroll Working rules, and having made a number of changes to support the smooth implementation of the new rules, the Government reconfirmed that the changes will be legislated for in Finance Bill 2020 and implemented from 6 April 2020.
Tackling Construction Industry Scheme (CIS) abuse
Another important point from an employer’s perspective is that the Government will introduce legislation in Finance Bill 2020 aimed at preventing non-compliant business from claiming tax refunds. Broadly, these measures will allow HMRC to reduce or deny the CIS credit claimed on employer returns where the sub-contractor cannot evidence their deductions and does not correct their return when asked. It will also simplify the rules covering deemed contractors, clarify the rules on allowable deductions for expenditure on materials, and expand the scope of the penalty for supplying false information when registering for CIS. Connected to this, the Government will also publish a consultation on how to promote supply chain due diligence, including ideas for tackling fraud in supply chains. It remains to be seen whether this focuses just on the construction industry or has broader application in line with HMRC’s wider focus on business supply chains in areas such as labour supply and VAT.
Other measures: Loan Charge and NIC
The Budget confirmed the Government’s previous response to Sir Amyas Morse’s Independent Loan Charge Review. The recommend changes will be legislated for in the forthcoming Finance Bill. However, the Government has made clear that it still has concerns that disguised remuneration schemes continue to be used, and it will therefore shortly issue a call for evidence on further action to “stamp out these schemes”.
Moreover, as announced by the previous Chancellor, the Budget confirmed an increase in the NIC Primary Threshold, i.e. the threshold at which employees start to pay NIC on their earnings, to £9,500 from April 2020. This increase will not apply to employer NIC contributions.
Whilst these measures address current challenges, underlying issues with how we tax labour in the 21st century remain unresolved. We await the Government’s response to the consultation that followed the Taylor review (published in July 2017) and whether the definition of ‘employment’ is to be codified and aligned for income tax, social security and labour rights purposes.
Following concerns over public sector workers, changes will enable more tax-relieved pension savings to be made.
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