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On 23 September 2022, the new Chancellor, Kwasi Kwarteng, unveiled the Growth Plan 2022 detailing the UK government’s set of economic policies aimed at, as the name suggests, boosting economic growth in the UK by improving competition and improving living standards by allowing people to retain more income. Much has been said in recent days on the merits and dangers of the plan and whilst we have seen an immediate impact on the value of the pound, it remains to be seen whether in the longer term the plan meets its aims and supports the country in navigating the likely impending recession. In the meantime, we summarise below the key elements of the plan from a UK employment perspective:

  • National Insurance cuts: On 6 April 2022, national insurance contributions (NICs) were increased by 1.25 percentage points, with a plan that this would make way for a new health and social care levy at the same level from April 2023. These have now both been scrapped. The NIC increase will be reversed from November 2022 and the health and social care levy will no longer be introduced next year. This is intended to make it cheaper for employers to employ staff, and allow more workers to keep more of what they earn.
  • Income tax cuts: The basic rate of income tax will reduce by 1 percentage point, from 20% to 19%, from April 2023, a year earlier than planned, and the highest income tax band of 45% for income over £150,000 is being abolished, again from April 2023. As with the NIC changes, this is intended to enable workers to retain more of their earnings.It is also hoped that the abolition of the top income tax band will attract more high earning talent to the UK.
  • Banker bonuses: A cap on banker’s bonuses was introduced by the EU following the 2008 financial crisis as it was believed that unlimited bonuses encouraged high-risk taking behaviour, and that a cap would limit the behaviour, which resulted in the crash. However, the cap came in for criticism for pushing up base salaries and bank’s fixed costs without allowing for adjustment for financial performance. Following Brexit, and the UK’s freedom to depart from the EU rules, that cap (of up to 2 times fixed salary) is now being removed. The thinking is that without the cap, the UK can be more competitive globally, being able to align pay practices with other markets, promoting UK economic growth, and to allow the UK to attract and retain talent in the UK.

Continue Reading UK Employment Law: key messages from the UK Government’s Growth Plan

With 6 April 2021 quickly approaching, the IR35 reforms are now back on the agenda and fast becoming a priority. Affected businesses need to have their implementation process in place before the IR35 reforms take effect.

IR35 is designed to ensure that appropriate income tax and national insurance contributions (NICs) are paid by contractors who provide their services through an intermediary company. In a nutshell, the IR35 rules bite where, but for that intermediary company, the individual contractor would be deemed an employee of the client. The IR35 reforms are important as they require medium and large businesses to carry out status determinations to assess whether IR35 applies. Where they conclude that IR35 applies (i.e. that there is deemed employment), the IR35 reforms shift responsibility to the client for making tax and NICs deductions through PAYE.Continue Reading IR35 changes – Are you ready?

This post was written by Fionnuala Lynch.

From 6 April 2011 the PAYE treatment of termination payments to an employee after a P45 has been issued will change. Any employers considering the timing of any imminent dismissals should consider whether it may be better to enter into any compromise agreement or other termination agreement before the end of this tax year. This will not change the actual amount of tax due but will have cash flow advantages for employees on higher rates of tax. As regards payments to be made after 6 April, employers should consider whether it may be better to make the entire payment before the issue of the P45 or structure the payment monthly, post P45.Continue Reading UK Regulations Amending PAYE Treatment of Post P45 Payments

Two recent cases give guidance on the tax treatment of settlement payments on termination of employment. A First-tier Tax Tribunal has, for the first time, laid down the correct approach to apportioning a settlement payment which is to compensate an employee for both discrimination and termination of employment. It was decided in Oti-Obihara v. HMRC that the proper starting point is the amount that can be identified as the ‘employment termination payment’, i.e. the amount which represents compensation for financial loss arising from the termination. The balance, being the compensation for injury to feelings, can be paid free of tax, recognising that it may be appropriate for a larger payment to be made.

In addition, the Court of Appeal in Norman v. Yellow Pages Sales Ltd has held that an employer has no implied duty to apportion a termination payment between taxable and non-taxable elements. The employer is entitled to deduct tax on the full amount (above £30,000), and any dispute over the amount of tax payable is a matter for the employee, not the employer, to pursue with HMRC.Continue Reading UK tax implications for settlement payments in cases of discrimination – recent developments