Budget 2016: The key changes for HR leaders

HR leaders in the private sector managed to escape Budget 2016 relatively unscathed – especially as the feared threat to mercilessly cut salary sacrifice was not realised.

However colleagues within the public sector face some tricky decisions and situations as a result of chancellor George Osborne’s eighth Budget.

They must find an additional £2bn per year in pension contributions from 2019-20 while also grappling with effectively bringing off-payroll workers into the scope of PAYE.

This latter task could prove particularly challenging and provide some awkward and potentially invasive questions into workers personal tax affairs.

The aim is to ensure all workers are paying the same level of tax but the extra responsibility on HR teams is likely to prove daunting. And there are suggestions this may just be a precursor to a full launch into the private sector in due course.

BKL director Geraint Jones told HRD Connect: “This measure places a significant burden on employers to decide whether PAYE is going to be applicable.

“These public sector organisations are going to have to assess potential contractors’ status without necessarily being in possession of all the information required.

“Exactly how the government envisages employers to investigate employees’ personal tax status remains to be seen. I look forward to seeing how the proposed test and tools work given the difficulties with previous attempts.”

Salary sacrifice cuts

While salary sacrifice did escape a full-on cut, the government admitted it is likely to take action on many uses of it.

A pledge to continue to allow it for pension saving, childcare and health-related benefits should prompt a sigh of relief.

But it is likely that this action, combined with the introduction of the Lifetime ISA (LISA), is a step toward the full reform of pensions taxation and eventual ending of salary sacrifice’s largest contributor.

The Pensions Management Institute (PMI) raised concerns about the impact of the Lifetime ISA on pension savings.

PMI president Kevin LeGrand noted: “There is the risk of an unintended consequence in encouraging younger people to focus more on the shorter-term saving for which the LISA appears suited.

“Automatic enrolment (AE), with the benefit of employer contributions, has been very successful in encouraging pension saving. It would not be desirable to see younger people go down an either/or route and neglect AE to concentrate on LISA contributions.

“Over the longer term, we wonder if the LISA is an initial step in a move towards a Taxed, Exempt, Exempt (TEE) tax regime for pensions saving,” he added.

NICs added to termination payments

Other new costs for employers within all sectors include the addition of national insurance contributions (NIC) on termination and other similar payments of over £30,000 that also attract income tax charges – a likely £500m bill.

PWC employment tax partner John Harding said the closer alignment of tax and NIC treatment was welcome news given there were more complex options available.

However he warned: “This will be an additional cost to employers – potentially making these redundancies much more expensive in the future. This is clearly not the end of the complex treatment of termination payments, which continue to evolve – had the £30,000 exemption kept pace with earnings it would now be in excess of £72,000.”

Healthcare schemes hit by further IPT rise

Insurance Premium Tax (IPT) was increased by a further 0.5% with the previous 3.5% point increase having barely settled in. It means IPT will have risen by two-thirds in less than a year.

While group life and protection schemes are exempt from IPT, medical and others schemes are not, meaning employers will likely see a further strain on healthcare benefits.

Company cars and vans will once again see the rate of vehicle excise duty rise by the retail prices index (RPI) measure of inflation in April, while Fuel Benefit Charge (FBC) and Van Benefit Charge (VBC) will do so a year later.

Small mercies

There were however some small positive outcomes for HR professionals.

From April 2017, employers will receive a 10% top-up to their monthly apprenticeship levy contributions in England, with this being available for them to spend on apprenticeship training.

Also, the tax and national insurance exempt amount that employers can spend on providing financial advice to staff will be raised from £150 to £500 in April 2017.

CBI director-general Carolyn Fairbairn noted that the Osborne had listened to concerns about the mounting burden on firms and had chosen to back business to grow the economy out of the deficit.

“Businesses will welcome the chancellor’s permanent reforms to business rates – taking more small firms out of the regime and changing the uprating mechanism from RPI to CPI, which the CBI has long been calling for,” she said.

“The reduction in the headline corporation tax rate sends out a strong signal that the UK is open for global business investment, and reforms to interest deductibility are rightly in line with the international consensus.

“Changes to the tax treatment of losses will make it harder for larger scale-up firms and companies that have been through tough times to play their part in the recovery,” she added.

Ignoring the workforce

However Fairburn was disappointed not to see investment in innovation and research and development.

This was echoed by the Chartered Institute for Personnel and Development. Chief economist Mark Beatson concluded: “The chancellor said this was a Budget for the next generation and the result is that today’s workforce has been largely forgotten.”