The Chancellor yesterday delivered the Autumn Statement 2016.
Salary sacrifice scrapped – with a few exceptionsThe tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultralow emission cars. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.
Jonathan Watts-Lay, director, WEALTH at work, said: “The financial benefit of purchasing certain items via salary sacrifice will now be removed, which will mean a re-thinking of the benefits offered by employers and ensuring employees understand the changes and the financial impact they may have.”
Pension scamsThe government will shortly publish a consultation on options to tackle pension scams, including banning cold calling in relation to pensions, giving firms greater powers to block suspicious transfers.
Redundancy paymentsFrom April 2018, redundancy payments over £30,000, which are subject to income tax, will also be subject to employer National Insurance contributions. Following a consultation, tax will only be applied to the equivalent of an employee’s basic pay if their notice is not worked. The first £30,000 of a redundancy payment will remain exempt from income tax and National Insurance.
Tax-free childcareTax-free childcare will be introduced gradually from early 2017, with roll-out beginning upon completion of the trial. Once the scheme is fully rolled out, the government will review its operation to ensure it is delivering as intended and to assess the benefit it is delivering for working parents.
Foreign pensionsThe tax treatment of foreign pensions will be more closely aligned with the UK’s domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic ones.
Watts-Lay said: “All these changes can only heighten the need for financial education for the differing segments of the workforce.
“Whether it is scams, redundancy, tax-free childcare or foreign pensions, employees need to understand their finances. For example, with regards to tax-free childcare: if they are better off with the old or new scheme will depend on how much they earn, how much they spend on qualifying childcare and how old their children are. It is essential that employees understand the mechanics of how it all works if they are to benefit. The best way that this can be achieved is by delivering a programme of financial education in the workplace so that employees understand the financial issues they will face during their career.”
National Insurance thresholdsThe National Insurance secondary (employer) threshold and the National Insurance primary (employee) threshold will be aligned from April 2017. This means that both employees and employers will start paying National Insurance on weekly earnings above £157.
ISA allowance increaseAs previously announced, the government will increase the ISA limit from £15,240 to £20,000 in April 2017.
Money Purchase Annual AllowanceThe Money Purchase Annual Allowance will be reduced to £4,000 from April 2017. The government will consult on the detail.
National Living WageThe Chancellor confirmed that the National Living Wage will increase from £7.20 to £7.50 an hour from 6 April 2017.
TaxationAs previously announced, the government has re-committed to raising the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of Parliament. In a step towards this, on 6 April 2017 the personal allowance will increase from £11,000 to £11,500 and the higher-rate threshold will increase from £43,000 to £45,000.
