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A summary of the key points of interest from the Budget, announced on 16 March 2016, in respect of employment rights, employment law and tax.
Taxation of termination payments
The government launched a consultation in July 2014 and proposed to overhaul the existing rules in respect of the taxation of termination payments. One proposal was to scrap the £30,000 exemption and replace it with an exemption for redundancy (voluntary or compulsory) at a rate rising in line with length of service.
The Budget notes that, under the current regime, employers are incentivised to manipulate the rules. However, the changes announced in the Budget are far less significant than what was anticipated. The first £30,000 of qualifying termination payments will remain exempt from income tax and the full payment will be outside of the scope of employee National Insurance Contributions (NICs). However, from April 2018, employer NICs will be due on payments above £30,000 which are already subject to income tax. This will result in significant additional costs to employers.
The government also set out an intention to 'tighten the scope of the exemption to prevent manipulation'. We await the publication of the government's response to the July consultation to discover what is meant by this and whether, as some commentators predict, the rules around taxation of payments in lieu of notice will be affected. We will keep you updated.
Shared (Grand) Parental leave
The government announced its intention to launch a consultation in respect of extending shared parental leave to grandparents. The government has already announced a commitment to extending the right to grandparents and the consultation will focus on the implementation of this, as well as ways in which the existing shared parental leave system can be streamlined. We will let you know when the consultation is launched.
Mandatory National Living Wage (NLW)
The Budget confirms that the new NLW will come into effect from 1 April 2016. The NLW is set at £7.20 for employees aged 25 and over.
The government is concerned about the growth of salary sacrifice schemes and reports that clearance requests to HMRC for salary sacrifice schemes has increased 30% since 2010. The government is therefore considering limiting the range of benefits that attract income tax and NICs advantages when provided via a salary sacrifice scheme. However,the government confirms that pension saving, childcare, healthcare and the cycle-to-work scheme will not be targeted.
Engaging contractors in the public sector
The Budget confirms that, from April 2017, public sector bodies will have a responsibility to ensure that, where they engage the services of an off-payroll worker, throughout that worker's own limited company the correct tax is paid. That is another attempt by the government to reduce the abuse of the tax system by those using personal service companies and similar entities (ie where the use of the company is purely a means of avoiding an employment relationship). However, this is the first time that the burden has shifted to the engaging party. We anticipate that this may be rolled out in the private sector in due course.