Autumn Statement 2013 – Summary
Each Government is bound under The Treasury Act 1975 to publish bi-annual reports to the nation, which we now recognise as the Autumn Statement and the Budget.
Yesterday, on 05 December at 11.15 pm, the Chancellor of the Exchequer George Osborne provided the 2013 Autumn Statement, probably best re-named the Winter Statement given its timing! The Statement provided an update on the Government’s plans for the economy based upon forecasts from the Office for Budget responsibility (OBR). With an economy that shows signs of recovery, there were no great surprises in the underlying messages that Mr Osborne had to say – the giveaways versus the spending cuts were fiscally neutral plus anything significant had, largely, been ‘leaked’ beforehand.
For me, the greatest surprise was how Twitter leapt into action at 11.15, with frantic Tweets from companies trying to be the first to break the news via this social network.
The full Autumn Statement 2013 can be read here, however, here is our roundup of the news that is relevant to the payroll profession
In Summary
Personal Taxation
Personal Allowance
The Government confirmed the increase of the Personal Allowance by £560 to £10,000 from 06 April 2014 for people born after 05 April 1948.
For information, the following table indicates the increases in this lower Personal Allowance and the decreases to the Basic Rate limit since the Coalition came to power in 2010, taking into account changes that have already been announced (at Autumn Statement 2012 and Budget 2013). The table also includes the Higher Rate threshold figure, i.e. the true level of taxable income after which a taxpayer becomes liable to tax at 40% (the Personal Allowance plus the Basic Rate limit):
£
10/11
11/12
12/13
13/14
14/15
Personal Allowance
6,475
7,475
8,105
9,440
10,000
Basic Rate Limit
37,400
35,000
34,370
32,010
31,865
Higher Rate Threshold
43,875
42,475
42,475
41,450
41,865
Comment
Remember that the other allowances for people born before April 1948 remain frozen. No announcement was made about further increases to the Personal Allowance that Nick Clegg has talked about recently. Maybe Budget 2014…..
Transferrable Personal Allowance for Married Couples / Civil Partners
Currently, any part of an individual’s Personal Allowance that is unused at the end of the tax year is, effectively, lost. Ahead of the 2013 Conservative Party Conference, Prime Minister David Cameron announced that the Government would introduce a tax break for some couples, as per their 2010 Manifesto pledge.
The Autumn Statement 2013 confirmed that, from April 2015, a transferrable allowance system will be introduced, whereby up to £1,000 of the unused Personal Allowance can be passed between married couples and civil partners. This would only apply to couples where the marginal rate of the highest earner is paying at the Basic Rate. The transferrable allowance will not benefit Higher and Additional Rate taxpayers, therefore, the maximum benefit per annum will be £200, i.e. £1,000 at 20%.
The transferrable allowance will be uprated annually ‘in proportion to the Personal Allowance’ and legislation will be included in Finance Bill 2014.
Taxation Other
Corporation Tax
There were no announcements that changed the previously-confirmed cut to from 23% to 21% from April 2014 and to 20% from April 2015.
Capital Gains Tax
Continuing with its measures to ensure those with the means to do so continue to pay their share of the tax burden, the Government announced plans to introduce capital gains tax on future gains made by non-residents disposing of UK residential property from April 2015. A consultation on how best to introduce the new charge will be published in early 2014
Changes to the Gift Aid system.
The Government wants as many eligible donations as possible to attract Gift Aid, and will establish a new working group to revise the model Gift Aid Declaration to make it easier to understand, and to develop new promotional material to increase take-up. The Government also intends to allow intermediaries to take a greater role in operating Gift Aid in order to reduce the number of instances where a new Gift Aid Declaration is given. However, following feedback from charities in the recent consultation exercise, it will consult further on the detail of how this can best be achieved, before changing legislation.
Further, from April 2014 donations by companies of gifts of money to Community Amateur Sports Clubs will be eligible for corporate Gift Aid.
National Insurance
Rates and Thresholds
The Chancellor confirmed that there will be no changes to the percentages; however, the thresholds will change, as always. At the time of writing, the only one that we can be sure of is the annual Upper Earnings Limit of £41,865, as this has been announced previously.
No Secondary NICs for Under-21s
In a move to support young people ‘and make sure that no one is left behind as the economy recovers’, the Government announced plans to make it more affordable for businesses to employ them. From April 2015, Secondary National Insurance Contributions (NICs) will be abolished for employees under 21 earning below the Upper Earnings Limit (£813 per week). The Autumn Statement Report says that an employer will save over £500 per annum for every employee under 21 earning £12,000, rising to £1,000 for an employee under 21 earning £16,000.
The current National Insurance Bill will be amended to provide the necessary primary legislation.
Comment
This came as a surprise and the immediate thought of how this would be achieved using the current NICs regime. The Government has stated that State benefit entitlements will not be affected by this move, meaning that the requirement to report band earnings (at the LEL, Primary Threshold etc) will remain. Secondary NICs will be not be payable on NI’able earnings up to an including the UEL but will be payable on earnings above this. At present, it does not seem that there is a mechanism in payroll software by which we are able to facilitate this sort of calculation, so we speculate whether this will mean the introduction of a new NI category letter.
Time will tell!
New Voluntary Class of National Insurance
To be eligible to receive a full BSP, it is necessary to have 30 years’ worth of National Insurance Contributions (NICs) history or NICs Credits. Where there are less than 30 years, a pro-rata BSP is payable. An individual can pay Class 3 NICs to fill in any ‘gaps’ in their NICs history. This is optional and Class 3 NICs are often referred to as voluntary contributions.
The State Second Pension (S2P) is an earnings-related accrual that is paid in addition to the BSP. Currently, there is no facility to top-up this accrual with additional funds, thereby increasing the S2P that is payable. The Government announced at Autumn Statement 2013 that they will introduce legislation to allow current pensioners, or those reaching SPa before the introduction of Single-Tier in 2016, an option to top-up their S2P record using a new Class of voluntary NICs. The new Class 3A will be introduced from October 2015 and will be time-limited.
Comment
The current voluntary NICs regime is administered outside of the payroll system and is a personal responsibility. This new class of NICs will be similarly outside the remit of payroll professionals; however, it is good to be aware of this in the event of queries from employees or pensioners.
Apprentices
The Government announced that they will reform apprenticeship funding, recognising that these play a vital role in ensuring that people are equipped with the skills needed to succeed in the labour market. The reform will:
‘put business at the centre of the apprenticeship system by enabling employers to receive funding for the training costs of apprentices directly through an HMRC-led system and ensuring that employers contribute’
Comment
In July 2013, the Government launched a consultation ‘Funding Reforms for Apprenticeships in England’ that looked at how funding reforms could be operated most effectively. One of the options was a PAYE Payment Model, through which apprentice funding will be achieved through the PAYE system. Training will be provided and assessed and the employer will calculate the portion of this cost that they are able to reclaim through Government funding. This funding reclaim will then be offset against the employer’s PAYE liability (presumably using Real Time Information and the introduction of a new Field on the Employer Payment Summary).
This looks to be the way that the Government has decided to go and the Government intends to consult on this in early 2014 together with the option of an alternative funding route for the smallest businesses. Despite recognising that RTI is, probably, the natural way that this should be administered, we encourage all payroll professionals to respond to this consultation when it comes, as this represents something that employers will have to be involved with.
Statutory Benefits
No announcements on the rates are announced at the Autumn Statement and we often have to wait for a while for this information. However, we do know, as per the Chancellor’s announcement at Autumn Statement 2012 that most working age benefits will only increase by 1%, as the benefits bill has been an easy target for the Government’s austerity measures.
We expect the following benefits to rise by 1% in April 2014:
Income Support
Jobseeker’s Allowance (JSA)
Housing Benefit
Income-related Employment and Support Allowance (ESA)
Work-related component of the ESA
Working Tax Credit (Couple and lone parent elements)
Child Tax Credit (child element)
In addition, the corresponding elements of the Universal Credit will also be increased by 1%. Benefits for the disabled and carers will increase in line with the CPI at September 2013, i.e. 2.7%.
Similarly, the following can also be expected to increase by 1%:
Statutory Sick Pay (SSP)
Statutory Maternity Pay (SMP)
Statutory Adoption Pay (SAP)
Statutory Paternity Pay (OSPP and ASPP), and
Maternity Allowance (MA paid by Jobcentre Plus)
Pensions
Basic State Pension
There will be a cap on overall welfare spending announced at Budget 2014; however, two specific exclusions from this cap are the Basic and State Second Pensions (BSP and S2P). The BSP will rise from April 2014 in line with the Triple Lock – the Consumer Prices Index (CPI) as at September, average wage increases or 2.5%. The CPI in September 2013 was 2.7%, therefore, the current full BSP of £110.15 per week will increase by £2.95 to £113.10.
The S2P will also be uprated by 2.7% from April 2014.
State Pension Age (SPa)
The Autumn Statement report states that the Government is committed ‘to providing a generous State Pension’ and the introduction of the Triple Lock has ensured that the BSP is £8.50 higher than if it had continued to be uprated in line with average earnings since 2011/12. In order to ensure that the State pension regime can continue to afford such uprating, it is necessary that the State Pension age (SPa) increases in line with increases in life expectancy. The government has already accelerated SPa increases as follows:
Age
Dates
Legislation
Equalisation to 65
2010 – November 2018
Pensions Act 2011
Increase to 66
December 2018 – October 2020
Pensions Act 2011
Increase to 67
April 2026 – April 2028
Pensions Bill 2013/14
The Pensions Act 2007 provides for the increase to 68 between 2044 and 2046. This still remains in legislation and has not been repealed. However, the Pensions Bill 2013/14, currently in the House of Lords, sets out a new framework for how future increases after 67 will be decided, based on the principle that people should expect to spend, on average, one third of their adult life in receipt of the State pension. From May 2017, a 5-yearly review will take place, once in each Parliament. This will consider any increases to the SPa of 67 (that will be provided for by the Pensions Bill 2013/14). The Autumn Statement report says that:
‘This principle implies that the increase in the State Pension age to 68 is likely to come forward from the current date of 2046 to the mid-2030s and that the State Pension age is likely to increase further to 69 by the late 2040s’
Comment
Whilst the increase in the SPa was headline news as I nibbled by toast on 05 December 2013, the announcement had already been made about this, therefore, should not have come as a total surprise. The fact that it did implied that the 14 January 2013 publication ‘The Single-Tier Pension: A Simple Foundation for Saving’ had not been understood.
Employee-Ownership Schemes
At Budget 2013, the Government announced that it would provide £50 million annually to incentivise growth of the employee-ownership sector. The Autumn Statement 2013 announced that this would be increased by a further £25 million that will impact as follows:
A relief from capital gains tax on disposals of shares that result in a controlling interest in a company being held by a trust used as an indirect employee ownership structure
An annual exemption from income tax on bonuses or equivalent payments up to an amount of £3,600 paid to employees of companies that are indirectly employee owned
an increase in the maximum annual value of shares that an employee can acquire with tax advantages under the Share Incentive Plans to £3,600 a year for ‘free’ shares and to £1,800 a year for ‘partnership’ shares. The Save As You Earn savings contribution limit will be doubled from £250 to £500 per month.
Legislation will be included in the Finance Bill 2014.
Benefits-in-Kind
‘Quick Wins’
The Government has already implemented 4 of the ‘Quick Wins’ identified by the OTS in their interim report on employee benefits and published on 8 August 2013. The Government will deliver a further 9 in January 2014 and consider a further 10 by the end of this Parliament.
The Government will consider the OTS’s final recommendations ahead of Budget 2014 on receipt of its final report
Company Cars
In a measure to protect tax revenues, effective 06 April 2014, the Government will introduce legislation in the Finance Bill 2014 to:
ensure individuals make payments for private use of a company car or van in the relevant tax year
ensure that where an employer leases a car to an employee, the benefit is taxed as a car benefit rather than as employment earnings
Comment
We are interested to see exactly which of the ‘Quick Wins’ are being considered. Hopefully, the long service award recommendation will be adopted. With regard to the changes on company cars, employers will have to check that private use payments are actually made in the tax year from 14/15 onwards. We wonder on the impact of car lease plans if such cars now have to be treated as benefits-in-kind rather than remuneration.
Other Measures
The Tax Disc
In a move designed to show that the Government is moving ‘into the modern age’, the beloved paper tax disc is to be replaced with an electronic system. In 1888, the Carriage Tax was extended to become the Wheel Tax with the eventual outcome of the Vehicle Excise Duty (VED) courtesy of the Roads Act 1920. The tax disc appeared a year later. From October 2014, the DVLA and the police will use an electronic register to ensure enforcement of the VED. Motorists will be given the option of paying annually, bi-annually or monthly by Direct Debit, though bi-annual and monthly payments will incur a premium of 5% more than paying the full amount in one instalment.
This will be effective 01 October 2014 and the Finance Bill 2014 will include the necessary legislation.
Compliance
The Government has confirmed that it will clamp down further on tax avoidance and aggressive tax planning, including the prevention of employment intermediaries from disguising employment as self-employment to avoid tax. Further, new powers will be introduced requiring taxpayers who use avoidance schemes that have already been recognised as such in the courts to pay their tax liability upfront.
HMRC’s compliance yield target is increased and they are targeted with raising an additional £3.7 billion by the end of 2015/16 (in addition to the £120 billion that has already been forecast). The Government also announced plans to expand HMRC’s capacity to collect tax debt that is repeatedly unpaid. In recognition of the increased compliance activity that they will be required to undertake, HMRC have been spared any reductions in departmental spending for 2015/15 and 2015/16.
Individual Savings Accounts (ISAs)
The Government will uprate the ISA, Junior ISA and Child Trust Fund annual subscription limits in line with Consumer Prices Index (CPI) at September 2013. In order to work out changes to the ISA Allowance, the Treasury takes the September CPI figure, applies it to the previous year’s ISA allowance, and then rounds it up to the nearest amount that can be divided by £120. The 2014-15 ISA limit will be increased to £11,880 (half of which can be saved in a cash ISA). The Junior ISA and Child Trust Fund limits will both be increased to £3,840.
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