Budget 2016 - employment related provisions

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

We set out below some of the headline employment related announcements from yesterday’s Budget, although as always, many of the details are still to be revealed and will be key!

Taxation of termination payments

- currently any contractual payment made to an employee in connection with the termination of employment (e.g. payments in lieu of notice or untaken holiday) are subject to income tax and employer and employee National Insurance contributions (NICs). In contrast, non contractual termination payments such as statutory redundancy pay and genuinely ex gratia payments can often be paid tax free up to £30,000 with any excess being subject to income tax only (“qualifying termination payments”). It was announced yesterday that from April 2018, qualifying termination payments will be subject to employer NICs to the extent that they exceed £30,000.

Personal service companies (“PSC”)

- the intermediaries legislation (often referred to as IR35) has been under scrutiny for some time. It was introduced to tackle tax avoidance through disguised employment and applies where individuals provide their services through an intermediary, most commonly their own PSC. Very broadly, the effect of the legislation is that individuals working through an intermediary pay the same tax and NICs as any other employees where they would have been an employee if they were providing their services directly.

The Government considers that the legislation is not working as effectively as it should and that there is widespread non-compliance. It was against this background that yesterday the Chancellor announced that from April 2017, where the public sector engages an “off payroll” worker through a PSC, that body will be responsible for determining whether the intermediaries legislation applies and then paying the correct employment taxes. Where an individual is supplied by an agency to a public sector body through a PSC, the agency (as the entity paying the PSC) will be responsible for the correct determination and payment of taxes.

For the moment, the rules remain unchanged in relation to those working in the private sector meaning that, in practice, in most cases, responsibility and liability for calculating and paying the correct tax will remain with the PSC.

Limit on exemption from capital gains tax (CGT) on shares acquired through employee shareholder status

- under the "employee shareholder" employment status (introduced in 2013) broadly, certain statutory employment rights are given up in exchange for shares in the employer company the gains on which are exempt from CGT. The Chancellor announced that an individual lifetime limit of £100,000 on gains eligible for the CGT exemption will be introduced and will apply in relation to arrangements entered into on or after today,17 March 2016.

For more analysis on this announcement, please see the post from the Olswang Tax Blog

Consultation on extension of shared parental leave to grandparents

- the Government also announced that it will launch a consultation in May 2016 on how to implement its commitment to extend shared parental leave and pay to working grandparents. The consultation will also cover simplifying the eligibility requirements and notification system.