NLW and NMW Increases
The National Living Wage was introduced at £7.20 per hour in April 2016 for employees over the age of 25 with the stated aim of increasing this to £9.00 an hour by 2020. In the autumn statement the Chancellor announced an increase of 30 pence an hour effective from April 2017. Some observers believe this to be a slightly lower increase than might have been expected if the goal of £9.00 an hour is to be reached by 2020.
The new minimum rates of pay rates from 1 April 2017 will be:
National Living Wage
£7.50 per hour – 25 years old and over
National Minimum Wage
£7.05 per hour – 21-24 years old
£5.60 per hour – 18-20 years old
£4.05 per hour – 16-17 years old
£3.50 for apprentices under 19 or 19 or over who are in the first year of apprenticeship.
Changes affecting Salary Sacrifice Schemes come into force in April 2017 when the tax and NI advantages of such schemes will be removed.
There are exceptions and schemes relating to pensions, childcare, cycle to work and ultra-low emission cars will not be affected. In addition the Government has said that arrangements in place before April 2017 will be protected until April 2018 and in the case of arrangements for cars, accommodation and school fees this protection will be extended until 2021.
Changes to the taxation of termination payments were announced earlier in 2016 effective from April 2018. The exemption from income tax and national insurance for termination payments up to the current threshold of £30,000 will be remain but employer NI contributions will be payable on payments above £30,000 from April 2018.
There will also be changes to the treatment of pay in lieu of notice (PILON) payments. Currently where an employment contract permits the company to make a PILON payment HMRC regards these payments as earnings and as such they are subject to income tax and NICs. However, non-contractual PILON payments are classed as compensation and as a result are not subject to tax and NICs.
The government has proposed that this confusing distinction is removed and from April 2018 all PILON payments will be taxable.