U.K. Proposes Payroll Tax, Minimum Wage Changes in Autumn Budget 2017

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By Anna Massoglia

Personal income tax provisions and minimum wages in the United Kingdom would change, effective starting April 6, 2018, under the Chancellor of the Exchequer Philip Hammond’s Autumn Budget released Nov. 22.

Income Tax Changes

The U.K.’s standard personal allowance, which is the amount of tax-free income an employee with a salary up to £100,000 ($133,050) can earn, is to rise to £11,850 ($15,766.43), up from the current amount of £11,500 ($15,303.05). In the U.K., taxable income is the amount of an employee’s earnings that exceeds the employee’s personal allowance.

If a taxpayer’s annual income is more than £100,000 ($133,050), the personal allowance is reduced by £1($2.36) for every £2($1.18) over that limit. Therefore, if the proposed standard personal allowance of £11,850 ($15,766.43) is in effect for the tax year from April 6, 2018, to April 5, 2019, an individual would need to earn at least £123,700 ($164,595.22) during the tax year to be totally ineligible for the personal allowance for the tax year.

The annual income threshold for applicability of the higher rate of personal income tax, when including taxable income and the standard personal allowance, is to increase April 6 to £46,350 ($61,673.31), the sum of £34,500 ($45,906.88) in taxable income plus the £11,850 ($15,766.43) tax-free standard personal allowance, up from the current threshold of £45,000 ($59,881.50), the sum of £33,500 ($44,578.45) in taxable income plus the £11,500 ($15,303.05) tax-free standard personal allowance. Income tax rates would remain unchanged under the budget.

The U.K. government is “committed” to further increasing the standard personal allowance to £12,500 ($16,635) and the higher rate threshold, when including the standard personal allowance, to £50,000 ($66,540) by 2020, the budget said. This would be an increase to the U.K.’s standard personal allowance of more than 90 percent during the course of 10 years.

Minimum Wage Increases

Effective starting April 6, 2018, the mandatory minimum wage and non-mandatory National Living Wage for workers at least 25 years of age is to increase to £7.83 ($10.42) per hour, up from £7.50 ($9.98) per hour, as recommended by the Low Wage Commission, the Chancellor of the Exchequer said in a financial statement on the budget Nov. 22.

Effective starting April 6, 2018, the mandatory minimum wage rate for employees at least 21 years of age and up to 24 years of age also to increase to £7.38 ($9.82) per hour, up from the current rate of £7.05 ($9.38), under the Low Wage Commission’s recommendations adopted by the Chancellor. The mandatory minimum wage for employees at least 18 years of age and up to 20 years of age is to increase to £5.90 ($7.86) per hour and the mandatory minimum wage for employees at least 16 years of age but under age 18 is to increase to £4.20 ($5.59), up from the current rates of £5.60 ($7.46) and £4.05 ($5.39) respectively.

Also starting April 6, 2018, the minimum wage for apprentices under age 19 or apprentices of any age in their first year of apprenticeship is to be £3.70 ($4.93) per hour, up from £3.50 ($4.66) per hour.

Other Payroll Proposals

Also starting April 6, 2018, electricity that employers provide to charge employees’ electric vehicles is to no longer be subject to tax as a fringe benefit or benefit-in-kind.

Consideration of National Insurance Contribution (NIC) system changes, including the treatment of termination payments and the elimination of Class 2 NICs, is to be delayed until 2018 to provide the U.K. government with more time to set details of policy changes, the budget said. Employers are to remain primarily responsible for the deduction of NICs from salary or wages through the Pay As You Earn system and for the payment of these sums to Her Majesty’s Revenue & Customs.

Effective from April 6, 2019, employers who reimburse subsistence costs to employees traveling outside the U.K. by making payments in compliance with the benchmark scale rates set by Her Majesty’s Revenue and Customs are to no longer be required to check receipts. Scale rates for employers reimbursing overseas subsistence or concessionary accommodations are to be placed on a statutory basis, the budget said.

The Chancellor’s budget proposals are to come effect after being enacted by the 2017 Finance Bill.

To contact the reporter on this story: Anna Massoglia in Washington at amassoglia@bloombergtax.com

To contact the editor on this story: Michael Baer at mbaer@bloombergtax.com

For More Information

The United Kingdom’s Autumn Budget 2017 is available from the U.K. government.

The Chancellor of the Exchequer's financial statement is available from the U.K. Parliament.

The Low Pay Commission's minimum wage recommendations are available from the U.K. government.

More information on payroll issues in the U.K. is available in the United Kingdom primer.

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