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Autumn Statement: Salary sacrifice restrictions among plans for 'sustainable' employment tax


Changes to the employment tax system to reflect different ways of working are needed to ensure that the UK tax base is "sustainable", the chancellor has said.

The government will remove the tax advantages of certain salary sacrifice schemes ahead of a wider review of employment tax, which will "ensure that the taxation of different ways of working is fair between different individuals, and sustains the tax base as the economy undergoes rapid change", he announced as part of the Autumn Statement.

The changes will come into force in April, although certain long-term arrangements will be protected until April 2021, according to the chancellor. Salary sacrifice schemes for ultra-low emission cars, pensions saving, childcare and the cycle to work scheme will be exempt from the changes.

In his speech, chancellor Philip Hammond described the current system as "unfair".

The chancellor has also confirmed a number of changes to employment tax which were announced at the Budget in March, and have since been consulted on. These include requiring the payment of employer National Insurance contributions (NICs) in the same way as income tax on termination payments over £30,000, and shifting the responsibility for compliance with the off-payroll working rules in the public sector to the body engaging that individual through a personal services company.

The government has also announced that employee shareholder status (ESS) will be abolished at the next legislative opportunity, "in response to evidence it is primarily being used for tax planning purposes by high-earning individuals". In the meantime, the tax advantages linked to shares awarded under the scheme will be abolished for arrangements entered into on, or after, 1 December 2016.

'Class 2' NICs will be abolished from April 2018. From April 2017, the NIC thresholds for both employers and employees will be aligned, meaning that both employees and employers will start paying National Insurance on weekly earnings above £157. This change was recommended by the Office for Tax Simplification (OTS) earlier this year.

Employment tax expert Chris Thomas of Pinsent Masons, the law firm behind Out-Law.com, said that the statement was "rather light on detail and contains few genuinely new announcements".

"The phasing out of salary sacrifice was previously trailed and may have a limited impact on many employers, as the most popular benefits are protected," he said. "It also looks like the changes to termination payments are going ahead much as planned, although the proposal to limit tax on non-contractual PILONs [payments in lieu of notice] to the amount of basic salary will certainly be welcome."

"The chancellor was largely silent on the hot topic of status and the 'gig' economy, aside from confirming the reform to the IR35 rules which will make public sector engagers responsible for PAYE. A more radical reform - including applying the change to the private sector and perhaps revisiting the tax treatment of 'workers' - would certainly have some logic, but it remains to be seen whether the government has the political will to pursue this amidst the distractions of Brexit," he said.

Pensions expert Simon Laight of Pinsent Masons said that it was a "relief" that pension contributions would not be affected by the changes to salary sacrifice.

"To have removed it would have undermined workplace pensions saving, risking a poor outcome for the UK's long-term saving goals," he said. "It is a decision by a chancellor that will be welcomed as it is more closely attuned to the realities of helping a nation cope with longer periods in retirement."

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