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The Emergency Budget - June 2010
What was the emergency?
The recent unveiling of the emergency Budget – no doubt – left many of us with a feeling of unease. With words of reassurance from the Chancellor of the Exchequer himself, should we welcome this as a sacrifice for a better future, or an added burden in these difficult times?
This is an emergency Budget, so let me speak plainly about the emergency we face. The coalition Government has inherited from its predecessor the largest budget deficit of any economy in Europe, with the single exception of Ireland. What we have not inherited... is a credible plan... Rt. Hon George Osborne, the Chancellor of the Exchequer
The emergency Budget talked much about cuts to government departments spending, and also welfare benefits to individuals, as well as measures to increase taxation. According to Mr Osborne, this Budget will ‘pay for the past and it plans for the future’.
The Public Sector is to face the brunt of these changes, with a cap on pay rises for those earning more than £21,000 plus and only £250 pay increase per annum for those who earn under that – and also not forgetting tougher pension choices (similar to those faced by the private industry for years). Even the Queen faced a freeze on the civil list whilst ‘recognising The Queen’s loyal service and immense contribution to public life’.
Also, with immediate effect, higher tax payers will be hit with a 10% upper hike in Capital Gains Tax rates from 18% to 28%, and the reversal of the election commitment to not raise VAT as a result of ‘the years of debt and spending make this unavoidable’, so it will be 20% from Jan 2011.
So, here’s the big question... what are the impacts for payroll & HR?
Employers’ NIC
The government announced a three-year scheme to exempt new businesses in the regions outside London, the Southeast and the East of England, from employers’ NICs for the first 10 employees (during their first 12 months of employment).
In a measure that takes a further 800,000 employees out of Income Tax liability, the personal allowance is increasing to £7,475 from April 2011. The basic rate limit will be equally reduced so that higher tax payers do not benefit.
The secondary threshold for NIC
The 1% NIC increase continues for both employees and employers. The secondary threshold (the point at which employers start to pay Class 1 NICs) has been increased a further £21 per week on top of the yet to be announced RPI increase. Equally there is an intended reduction in the Upper Earnings Limit to enable alignment with the higher rate threshold. So another rewrite of the NIC calculation will be required.
The popularity of salary sacrifice schemes may be boosted by the potential increases in savings for medium and higher paid individuals. However, there are challenges to face for lower-paid employees, who may now see benefit provision restricted by the employers - due to earnings below the new secondary threshold as there is no NIC saving. It is possible that all tax and NICs savings on the operation of benefits such as Child Care Vouchers and Bikes may have gone for the lower paid.
Restrictions to pension tax relief
More details on the restricting pension tax relief from April 2011 were revealed with plans to drastically reducing the annual allowance. The level of the reformed annual allowance could be in the region of £30,000 to £45,000 as opposed to the current £255,000 per annum. This replaces (and repeals) the high income excess relief charge which was due to come into force from 6 April 2011.
PAYE improvements
During the summer the Government intends to consult with employers and payroll providers on the mechanisms available that could support more frequent or real time PAYE data in an attempt to explore how PAYE could be improved in order to reduce costs and ease to administration.
Read more articles by Simon Parsons
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