Autumn Statement 2023 - Employment tax - NIC reductions and National Living Wage

The main headline-grabber from the Autumn Statement on the employment side is the reduction of the main rate of employee National Insurance Contributions (NICs) from 12% to 10%, which comes into effect on 6 January 2024.

The Government estimates that this measure will benefit 29 million employees across the UK (National Insurance is not a devolved tax so this applies equally to employees in Wales and Scotland) which is to be welcomed. However, there is some disappointment that the employer rate of 13.8% will not change, and neither will the employee rate of 2% above the Upper Earnings Limit of £50,270 per year.

The government announced the other main change on the employment side a day earlier, confirming the new hourly rates for National Living/Minimum Wage effective from 1 April 2024. All rates have been subject to above-inflation increases, with the main rate rising to £11.44 an hour. This will now also apply to 21 and 22-year-olds for the first time.

The Government’s commitment to eradicating low pay is to be applauded but the effect these changes will have on some businesses should not be underestimated, especially those operating in the hospitality, healthcare and manufacturing sectors, where pressure to maintain pay differentials between entry-level staff and other employees will have a knock-on impact on operating costs over and above the statutory uplift to the minimum wage rates.

As expected, it has been confirmed that an easement will be introduced to IR35 legislation, with effect from 6 April 2024, to allow income tax/corporation tax already paid by a Personal Service Company to be taken into account when a contractor is ruled to have been paid outside of IR35 incorrectly. The ‘deemed’ employer will only be required to pay the additional tax/NIC due in such cases which is the sensible outcome that many had hoped for. However, HMRC has confirmed that penalties will still be due by the ‘deemed’ employer on the gross liability before “credit” is given for tax already paid.

Several changes have also been announced in relation to the Construction Industry Scheme. Most of these changes relate to the tightening of rules around CIS subcontractors qualifying for Gross Payment Status, the main one of which is the extension of the tax compliance test to include VAT. These changes basically make it easier for HMRC to refuse Gross Payment Status or to withdraw this if the subcontractor is not fully up to date with their general tax obligations. The one positive change that will be introduced is the exemption from CIS for certain payments made by landlords to tenants for property improvements or refits.