The Growth Plan 2022 featured both income tax and National Insurance (NICs) cuts, with the aim of putting more money in people’s pockets at a time of increased costs of living, however, only the NICs cuts remain, following the subsequent cancellation of intended changes in the Emergency Statement.
The reversal of the 1.25% rise on National Insurance Contributions (NICs) will bolster take-home pay for both employees and the self-employed from 6 November 2022. The implementation is, however, likely to be an administrative challenge for employers, particularly payroll providers, and care will need to be taken, for instance in relation to the taxation of share-based income.
While many businesses will have an expectation of the tax and NICs cost of benefits and expenses, the NICs reversal will also be welcome news for reducing the overall cost of provision. Given the mid-year change to rates, Class 1A NICs and Class 1B NICs will be set at 14.53% for the 2022/23 tax year only, giving us a new number to get used to for P11D and PSA reporting respectively and associated accruals. The changes also provide a good reminder to review the cost of employee benefits and ensure available reliefs and approaches to provision, including salary sacrifice, are fully utilised.
With the reversal not coming into effect until 6 November, businesses should also consider the timing of any discretionary payments they may be planning to make to employees, to ensure they benefit from the reduced rate.
Employees over state pension age will also not need to pay the Health and Social Care Levy that was due to be introduced from 6 April 2023.
NICs incentives were also announced for Investment Zones, along the lines of those for existing Freeports, to attract businesses into further regional areas to support the Levelling Up agenda.
The most headline grabbing announcement during the mini-budget had been the abolition of the additional rate of income tax at 45p and reduction of the basic rate of income tax from 20p to 19p. This was, however, subsequently cancelled and there are no current intentions to change these rates. No changes to personal allowances, the tapering of the annual allowance or pensions limits were announced and there was also potentially welcome news for UK banks, with the removal of the bonus cap and more freedom in approaches to structuring reward packages.
Prior to the initial announcements, there had been an expectation that the government would review the IR35 rules. Although there was a surprise announcement of a repeal of the off-payroll working legislation during the mini-budget, this was subsequently reversed by Hunt on 17 October and therefore the rules remain as currently.
Employers will therefore need to continue to focus on compliance and carry out their responsibilities under the existing rules.
The government also announced the abolition of the Office of Tax Simplification (OTS), with all HMRC and Treasury officials mandated to simplify the code. The question remains over what changes we'll subsequently see as a result of this and what will happen to the ongoing reviews the OTS are involved in, including a focus on hybrid working and a number of employment tax reliefs.
In spite of the various u-turns on many of the mini-budget announcements, there will continue to be opportunities and challenges for employers. Reduced payroll costs are welcome, but preparing for the NIC changes potentially requires significant effort at short notice. With the cost-of-living crisis yet to fully bite for many, employers can still take advantage of salary sacrifice and should ensure they utilise available reliefs to ensure efficiency. For those engaging contractors working via intermediaries, the challenge of getting employment status right from an IR35 perspective also persists.
If you’d like to discuss the implications for your own business, get in touch with Jonathan Berger.