Employment tax

National Insurance contributions and the Health and Social Care Levy 

Prior to the Autumn Statement the government had already reversed the temporary increase in Class 1 National Insurance contributions (NICs) introduced in April 2022, with effect from 6 November, and cancelled the Health and Social Care Levy that was due to take its place as a separate tax from April 2023. This has resulted in the NICs rate for Class 1A (on P11D benefits) and Class 1B (on PAYE settlement agreements) for 2022/23 being a blended rate of 14.53%. The NICs rates applicable to directors’ annual earnings are also blended for 2022/23, these being: 12.73% for employee contributions on income between the lower and upper earnings limits; 2.73% for employee contributions above the upper earnings limit; and 14.53% on employer contributions. 

In the Autumn Statement, the chancellor announced that the threshold at which employers start to pay Class 1 employers NICs at 13.8% for their employees (the secondary threshold) will be fixed at £9,100 from April 2023 until April 2028. 

The freeport upper secondary threshold, above which employer contributions are payable in respect of eligible employees, will stay fixed at its current level of £25,000 and the other upper secondary thresholds will stay fixed at £50,270 until April 2028, leading to additional costs for employers in the coming years, particularly bearing in mind current wage inflation.

Company cars and vans

Having listened to industry bodies, and in order to continue to incentivise the use of electric vehicles, the chancellor has announced that increases in company car benefit charges for both electric and ultra-low emission cars emitting less than 75g/km of CO2 will be modest. These charges will increase by 1% of list price in 2025-26, a further 1% in 2026-27 and a further 1% in 2027-28, up to a maximum of 5% for electric cars and 21% for ultra-low emission cars. 

Currently, the benefit in kind percentage for a fully electric vehicle is 2% of list price and this is frozen up to and including the 2024/25 tax year. The chancellor’s announcement means the benefit in kind percentage will increase to 3% in 2025/26, 4% in 2026/27 and 5% in 2027/28.

While increases in benefit in kind charge rates are never welcome, the rates for fully electric vehicles will remain low. The announcement provides employers and employees with certainty that electric cars will remain a tax and NICs efficient benefit at least until 5 April 2028, which is helpful given that many lease agreements will be for three years or more. These benefit in kind rates should continue to incentivise the take-up of electric vehicles, particularly where such cars are provided in conjunction with a salary sacrifice arrangement. However, it remains to be seen whether the announcement to charge vehicle excise duty on electric vehicles from April 2025 will have any significant impact on decision making in this area.

The appropriate percentages for all other company car benefit charges will be increased by 1% of list price for 2025-26 up to a maximum of 37% and will then be fixed in 2026-27 and 2027-28. The car fuel benefit charge will also increase in line with the consumer prices index (CPI) from 6 April 2023.

For company vans, the van benefit charge and van fuel benefit charges will, from 6 April 2023, also increase in line with CPI. Van and van fuel benefit charges will therefore remain low when compared to car benefit charges. Whilst this might incentivise the use of company vans over company cars in certain circumstances, care needs to be taken that the vehicle made available does qualify as a van following the outcome of the Coca-Cola tax tribunal case and given the complications that can arise in correctly identifying double cab pick-up trucks for this purpose.

Salary advance arrangements

Salary advance payments are now more common as employees start to struggle with the current cost-of-living crisis. Such payments are treated as payments on account of earnings under current legislation, meaning that employers must submit additional real time information (RTI) reports to record these advance payments.

Employers may sometimes make such arrangements through a third party, the latter charging a small fee for their services.

The government has recognised that the statutory position, if applied to salary advances, creates extra administrative burdens for both employers and HMRC, because of the requirement to submit additional RTI returns.

To address these issues, the relevant secondary legislation will be amended, so that salary advances can be reported on or before the employee’s contractual pay day. This means each payment of salary only needs to be included on an RTI report once. Further information, including plans to update guidance, will appear in a future edition of HMRC’s Employer Bulletin.

Off-payroll working

Prior to the Autumn Statement, it was confirmed that the off-payroll working administrative rules introduced for the public sector from April 2017, and extended to medium-sized and large private sector businesses from April 2021, will remain in place.

With HMRC having increased compliance activity in this area, engagers are reminded that the light touch approach to penalties for non-compliance with the rules introduced in April 2021 ended in April 2022. HMRC has collected a significant amount of additional tax from the public sector through identifying non-compliance with the off-payroll working rules, and there are many lessons to be learned for engagers in both the public and private sectors around determining the status of workers and taking reasonable care in operating the rules by, for example, making sure those tasked with applying them have had suitable training.

Company share option plans

Company share option plans (CSOPs) are tax advantaged share incentives that allow companies to grant tax efficient share options to employees selected at the employer’s discretion. A number of conditions apply, but it has been confirmed that, from April 2023, qualifying companies will be able to issue up to £60,000 of CSOP options to employees; double the current £30,000 limit. 

In addition, the rule that restricts companies whose shares are eligible for CSOP incentives to those with share classes that are ‘worth having’ will be eased, better aligning the CSOP rules with the rules in the enterprise management incentives (EMI) share option scheme and widening access to CSOPs for growth companies. 

National Living Wage and National Minimum Wage

Following the recommendations of the independent Low Pay Commission (LPC), the government will increase the National Living Wage (NLW) for individuals aged 23 and over by 9.7% to £10.42 an hour from 1 April 2023. This is the biggest ever rise in the NLW and represents an increase of over £1,600 to the annual earnings of a full-time worker on the NLW, expected to benefit over two million low paid workers.

The government has also accepted the LPC’s recommendations for the other National Minimum Wage (NMW) rates to apply from April 2023, including: 

• increasing the rate for 21-22 year olds by 10.9% to £10.18 an hour; 
• increasing the rate for 18-20 year olds by 9.7% to £7.49 an hour; 
• increasing the rate for 16-17 year olds by 9.7% to £5.28 an hour; 
• increasing the apprentice rate by 9.7% to £5.28 an hour; and 
• increasing the accommodation offset rate by 4.6% to £9.10 an hour.

This is a great boost for many low paid workers that will help during the tough times ahead. But the flip side is it is also an extremely difficult situation for many businesses. With NMW/NLW compliance a focus area for HMRC, it is important that businesses also consider the impact processes and policies can have on pay calculations, to avoid inadvertently bringing workers’ pay below NMW.