[UK] Autumn Budget 2021: Chancellor says ‘Cheers’

So if it all gets too much for payroll professionals, we can at least console ourselves that duty on prosecco and draught beer (and low alcohol variants of course with a nod to the NHS!) are going down…but not until April 2023.

Today was the second UK fiscal event this year and incorporated the spending review which is when the UK government sets out departmental budgets. Payroll industry expert Kate Upcraft walks us through the key points to take away from the Autumn Budget and Spending Review 2021.

Thanks to a more positive forecast from the independent Office of Budget (OBR) responsibility the Chancellor had quite a few billion pounds extra to hand out than had been expected in his quest ‘for an economy fit for a new age of optimism’ but with the spectre of rising inflation to be managed. The OBR expects the UK to return to pre-COVID economic levels from the start of 2022 with a predicted rate of unemployment at 5.25 per cent rather than 12 per cent - is this a success for the Chancellor or a forecasting failure by the OBR? 

It may be a bit premature though given that the end of the coronavirus job retention scheme (CJRS) was less than a month ago and April 2022 sees significant increases in business costs with respect to the rise in the national minimum wage, employer’s national insurance increasing by 1.25 percentage points and then corporation tax going up to 25 per cent in 2023 (or 28 per cent as was confirmed for the financial services sector when you factor in the bank surcharge).  

There was some comfort though that the starting point for employer and employee national insurance (NI) will increase by 3.1 per cent from April 6, 2022, even though the upper earnings limits are frozen at £50,270 in line with the 40 per cent tax threshold and there is no increase in the personal allowance until 2025. A new NI exemption for Freeports will be introduced in April 2022 and some of those locations have been confirmed in the Budget. 

National Minimum Wage 

The rise in the national minimum wage, which along with many other ‘announcements’ from today’s Budget were published to journalists in recent days, leading to the deputy speaker of the House of Commons rebuking the Chancellor just before his speech, was confirmed as follows: 

* Age 23 and above £9.50 per hour 

* Age 21 and 22 £9.18 per hour 

* Age 18-20 £6.83 per hour 

* Under 18s and apprentices in their first year £4.81 per hour 

* The accommodation offset £8.17 per hour 

To be clear, as this is unlikely to be announced correctly as it never is, these rates will come into force for the first pay period that begins on, or after, April 1, 2022. 

Universal credit reform 

However, in a break with the normal timetable for the annual change in benefit rates, a change to Universal Credit (UC) will take effect at the latest from December 1, 2021. The taper rate which reduces UC for every £1 of earnings will drop from 63 per cent to 55 per cent, and the work allowance will increase by £500 a year. 

This will affect the upwards of 3.4 million people who are now working and in receipt of UC, but who of course have just lost the temporary £20 per week COVID-uplift. The timing of this change is interesting as it coincides with the risk of early paid Christmas wages impacting UC awards. A change in legislation in November 2020 and DWP’s commitment to reallocate wages automatically will help where employers do not follow the ‘Christmas easement’. 

The easement requires employers to report within the RTI full payment submission (FPS) the contractual date of payment, even where wages are bought forward to an earlier date for the month of December. For December only the normal contractual date is also the FPS filing deadline regardless of the earlier actual date payment. 

Public service budgets, skills improvements and new visas 

The Chancellor ended the public sector pay freeze saying that ‘world-class public services are the people’s priority’ and that he is responsible for using their money wisely. All government departments will get a 3.8 per cent real-term increase in their budgets.  

There was much talk in the speech of ‘levelling up’ and the skills agenda which is difficult territory for the Chancellor given that education are skills are both matters devolved within the United Kingdom, so it is for the devolved administrations of Scotland, Wales and Northern Ireland to take their own decisions. But he has given them additional funding over and above the Barnett formula which provides for their share of taxation receipts meaning the highest devolution settlements since 1998. We will also be able to travel more cheaply within the UK thanks to a reduction in air passenger duty for domestic flights. 

For industry professionals needing to bring talent from further afield than the UK, the government plans a new Scale-up Visa, launching in spring 2022, that will help the UK’s fastest-growing businesses to access overseas talent. The visa will be open to applicants who pass the language proficiency requirement and have a high-skilled job offer from an eligible business with a salary of at least £33,000. This will then entitle them to a fast-track visa 

Pensions, cars and vans 

The Chancellor would like our pension funds to invest more in infrastructure projects like airports and HS2 (of which there was no mention in the speech) and to this end, he signalled another consultation on changes to the 0.75 per cent charge cap on pension contributions. Whilst this is no surprise as it has been under discussion for the last six months since the last budget, choosing to announce it as part of the budget speech highlights that the Treasury is taking firm control of this aspect of pensions’ policy and not the Department of Work and Pensions. So it may be that improvements in infrastructure: everything from fewer potholes to rural bus services, is paid for by increased charges on our pensions.   

But for those not utilising public transport the van benefit charge will increase to £3,600 from April 2022, the car fuel benefit multiplier to £25,300 and the flat rate van fuel benefit charge to £688.   

Those pension savers in net pay arrangement schemes who would be impacted by increased pension charges will welcome the confirmation that the government is going to solve the ‘net pay anomaly’ by introducing the compensatory payment solution that was a manifesto commitment in 2019. This is needed because 1.2m workers auto-enrolled in net pay arrangement pension schemes, 75 per cent of whom are women, such as those offered by Smart and NOW pensions who have earnings between £10,000 and (currently) £12,570 have to pay a minimum of 5 per cent pension contributions but are not given any tax relief as they are not taxpayers. 

This is in contrast to those in relief at source (RAS) schemes where even non-taxpayers receive 20 per cent tax relief (the Government has also promised to review the administration of RAS as well). The repayment would be worth around £53 per year for each affected worker. Why it will take until the end of 2024/25 tax year (and it will not be retrospective) to introduce the compensation is a mystery, given we have a UK wide real-time information earnings’ reporting infrastructure. 

The response paper indicates this is because of ‘the complex nature of the IT systems changes required, as well as other ongoing HMRC delivery programmes’. Remarkable isn’t it that employers manage to deliver complex IT changes with hardly any lead time at all?!

R&D tax relief and more HMRC wriggle room 

Payroll professionals will be brushing up on their knowledge of research and development tax relief as these are going to be expanded to include cloud computing and data costs, could that be a boost for the payroll software community? Particularly as R&D reliefs are going to incentivise domestic innovation, which we couldn’t when the UK was a member of the EU. 

Heaven forbid there should be another pandemic or such like but HMRC are taking legislative powers in the future to allow them to amend employment tax rules more easily such as the changes that had to be brought in to facilitate home and hybrid working. So this will be welcome but we must remember that unless there has been an easement we can’t rely on HMRC turning a blind eye ‘because of COVID-19’. 

And finally, there was one announcement that one hopes is of no interest whatsoever to payroll professionals; an investment of £560 million in an adult numeracy programme to raise levels of numeracy above the age of nine for a predicted 49 per cent of the working-age population...I’m sure you’re all in the other 51 per cent (did I get that percentage right?).

So if it all gets too much for payroll professionals, we can at least console ourselves that duty on prosecco and draught beer (and low alcohol variants of course with a nod to the NHS!) are going down…but not until April 2023.

Today was the second UK fiscal event this year and incorporated the spending review which is when the UK government sets out departmental budgets. Payroll industry expert Kate Upcraft walks us through the key points to take away from the Autumn Budget and Spending Review 2021.

Thanks to a more positive forecast from the independent Office of Budget (OBR) responsibility the Chancellor had quite a few billion pounds extra to hand out than had been expected in his quest ‘for an economy fit for a new age of optimism’ but with the spectre of rising inflation to be managed. The OBR expects the UK to return to pre-COVID economic levels from the start of 2022 with a predicted rate of unemployment at 5.25 per cent rather than 12 per cent - is this a success for the Chancellor or a forecasting failure by the OBR? 

It may be a bit premature though given that the end of the coronavirus job retention scheme (CJRS) was less than a month ago and April 2022 sees significant increases in business costs with respect to the rise in the national minimum wage, employer’s national insurance increasing by 1.25 percentage points and then corporation tax going up to 25 per cent in 2023 (or 28 per cent as was confirmed for the financial services sector when you factor in the bank surcharge).  

There was some comfort though that the starting point for employer and employee national insurance (NI) will increase by 3.1 per cent from April 6, 2022, even though the upper earnings limits are frozen at £50,270 in line with the 40 per cent tax threshold and there is no increase in the personal allowance until 2025. A new NI exemption for Freeports will be introduced in April 2022 and some of those locations have been confirmed in the Budget. 

National Minimum Wage 

The rise in the national minimum wage, which along with many other ‘announcements’ from today’s Budget were published to journalists in recent days, leading to the deputy speaker of the House of Commons rebuking the Chancellor just before his speech, was confirmed as follows: 

* Age 23 and above £9.50 per hour 

* Age 21 and 22 £9.18 per hour 

* Age 18-20 £6.83 per hour 

* Under 18s and apprentices in their first year £4.81 per hour 

* The accommodation offset £8.17 per hour 

To be clear, as this is unlikely to be announced correctly as it never is, these rates will come into force for the first pay period that begins on, or after, April 1, 2022. 

Universal credit reform 

However, in a break with the normal timetable for the annual change in benefit rates, a change to Universal Credit (UC) will take effect at the latest from December 1, 2021. The taper rate which reduces UC for every £1 of earnings will drop from 63 per cent to 55 per cent, and the work allowance will increase by £500 a year. 

This will affect the upwards of 3.4 million people who are now working and in receipt of UC, but who of course have just lost the temporary £20 per week COVID-uplift. The timing of this change is interesting as it coincides with the risk of early paid Christmas wages impacting UC awards. A change in legislation in November 2020 and DWP’s commitment to reallocate wages automatically will help where employers do not follow the ‘Christmas easement’. 

The easement requires employers to report within the RTI full payment submission (FPS) the contractual date of payment, even where wages are bought forward to an earlier date for the month of December. For December only the normal contractual date is also the FPS filing deadline regardless of the earlier actual date payment. 

Public service budgets, skills improvements and new visas 

The Chancellor ended the public sector pay freeze saying that ‘world-class public services are the people’s priority’ and that he is responsible for using their money wisely. All government departments will get a 3.8 per cent real-term increase in their budgets.  

There was much talk in the speech of ‘levelling up’ and the skills agenda which is difficult territory for the Chancellor given that education are skills are both matters devolved within the United Kingdom, so it is for the devolved administrations of Scotland, Wales and Northern Ireland to take their own decisions. But he has given them additional funding over and above the Barnett formula which provides for their share of taxation receipts meaning the highest devolution settlements since 1998. We will also be able to travel more cheaply within the UK thanks to a reduction in air passenger duty for domestic flights. 

For industry professionals needing to bring talent from further afield than the UK, the government plans a new Scale-up Visa, launching in spring 2022, that will help the UK’s fastest-growing businesses to access overseas talent. The visa will be open to applicants who pass the language proficiency requirement and have a high-skilled job offer from an eligible business with a salary of at least £33,000. This will then entitle them to a fast-track visa 

Pensions, cars and vans 

The Chancellor would like our pension funds to invest more in infrastructure projects like airports and HS2 (of which there was no mention in the speech) and to this end, he signalled another consultation on changes to the 0.75 per cent charge cap on pension contributions. Whilst this is no surprise as it has been under discussion for the last six months since the last budget, choosing to announce it as part of the budget speech highlights that the Treasury is taking firm control of this aspect of pensions’ policy and not the Department of Work and Pensions. So it may be that improvements in infrastructure: everything from fewer potholes to rural bus services, is paid for by increased charges on our pensions.   

But for those not utilising public transport the van benefit charge will increase to £3,600 from April 2022, the car fuel benefit multiplier to £25,300 and the flat rate van fuel benefit charge to £688.   

Those pension savers in net pay arrangement schemes who would be impacted by increased pension charges will welcome the confirmation that the government is going to solve the ‘net pay anomaly’ by introducing the compensatory payment solution that was a manifesto commitment in 2019. This is needed because 1.2m workers auto-enrolled in net pay arrangement pension schemes, 75 per cent of whom are women, such as those offered by Smart and NOW pensions who have earnings between £10,000 and (currently) £12,570 have to pay a minimum of 5 per cent pension contributions but are not given any tax relief as they are not taxpayers. 

This is in contrast to those in relief at source (RAS) schemes where even non-taxpayers receive 20 per cent tax relief (the Government has also promised to review the administration of RAS as well). The repayment would be worth around £53 per year for each affected worker. Why it will take until the end of 2024/25 tax year (and it will not be retrospective) to introduce the compensation is a mystery, given we have a UK wide real-time information earnings’ reporting infrastructure. 

The response paper indicates this is because of ‘the complex nature of the IT systems changes required, as well as other ongoing HMRC delivery programmes’. Remarkable isn’t it that employers manage to deliver complex IT changes with hardly any lead time at all?!

R&D tax relief and more HMRC wriggle room 

Payroll professionals will be brushing up on their knowledge of research and development tax relief as these are going to be expanded to include cloud computing and data costs, could that be a boost for the payroll software community? Particularly as R&D reliefs are going to incentivise domestic innovation, which we couldn’t when the UK was a member of the EU. 

Heaven forbid there should be another pandemic or such like but HMRC are taking legislative powers in the future to allow them to amend employment tax rules more easily such as the changes that had to be brought in to facilitate home and hybrid working. So this will be welcome but we must remember that unless there has been an easement we can’t rely on HMRC turning a blind eye ‘because of COVID-19’. 

And finally, there was one announcement that one hopes is of no interest whatsoever to payroll professionals; an investment of £560 million in an adult numeracy programme to raise levels of numeracy above the age of nine for a predicted 49 per cent of the working-age population...I’m sure you’re all in the other 51 per cent (did I get that percentage right?).