As payroll professionals, we often await fiscal statements with bated breath, and the U.K. spring budget of 2023 was certainly no different. These events can often bring a raft of changes for the industry to be aware of and often directly impact the work payroll carries out daily. There is some good news here, however, as the spring budget, although full of interesting announcements, didn’t announce a substantial amount that will have significant effects for payroll.
Let’s not forget, the autumn statement was only delivered on 17 November 2022, so there hasn’t been very long between the two fiscal events. We heard about changes to the additional tax rate threshold and multiple freezes to tax and National Insurance until 2028, so it was to be expected that no announcements would be made in those areas. There was, however, some news in areas which sit on payroll’s periphery, as the profession becomes more involved with other organisational departments and is now often consulted on in a strategic capacity.
Let’s turn our attention to some of those areas now.
Investment Zones
Initially mentioned in the growth plan, investment zones are intended to drive growth and unlock housing across the U.K. The budget confirmed 12 new investment zones will be created, including four across Scotland, Wales, and Northern Ireland. There will be benefits for employers in designated areas in investment zones, including a zero-rate of employer National Insurance contributions (NICs) on new employee earnings up to £25,000 per year, in alignment with the employer NICs relief for businesses located in freeport tax sites. This will be for employees working in the investment zone for at least 60% of their time, and the relief can be applied for up to 36 months per employee.
This is a change to the information provided alongside the growth plan, in which it was indicated a zero-rate of employer NICs would apply on new employee earnings up to £50,270 per year, in alignment with the upper earnings limit. It’s important for payroll professionals to be aware of this change to ensure they are in compliance.
Pensions
As always, prior to the budget speech, there was much speculation as to its contents. Much of this focussed on potential reform to the taxation of pensions. The budget didn’t disappoint in this area.
The first announcement centred on the annual allowance, which was confirmed would increase from £40,000 to £60,000 by 6 April 2023. It will still be possible for individuals to carry forward any annual allowance that’s unused from the previous three tax years. The annual allowance is the maximum amount of pensions savings an individual can make each year with tax relief without incurring a tax charge.
The second big announcement is related to the pension lifetime allowance. It currently sits at £1,073,100. It was rumoured this would increase to £1,800,000, but Jeremy Hunt, Chancellor of the Exchequer, surprised everyone when he announced the pensions lifetime allowance would actually be abolished. The lifetime allowance charge will be removed by 6 April 2023, and the lifetime allowance will be abolished in full in a future Finance Bill.
Hunt recognised in his speech that, “3.5 million of pre-retirement age over 50s are not part of the labour force, an increase of 320,000 since before the pandemic.”
These amendments to the pensions tax system could encourage individuals in this age bracket to return to work, as they can potentially save more into their pension pots without incurring tax charges.
‘Returnerships’
Another measure to incentivise the over-50s population to get back into work are the wonderfully named “returnerships.” This will be a new kind of apprenticeship, targeted at over-50s who wish to return to work. They will operate alongside skills boot camps and sector-based work academies and will focus on flexibility and previous experience to reduce the length of training.
Tax Simplification
Now that the Office for Tax Simplification has been wound down, the remit for the simplification of tax now sits with HMRC and the Treasury. It was pleasing, therefore, to see a whole section of the budget documentation allocated to measures to aid the simplification of the tax system.
HMRC will review tax guidance and forms for small businesses over the next two years, in recognition of the fact that smaller businesses often operate in a different fashion to larger organisations. The government will ensure guidance is clear and easy to understand and will enable smaller businesses growth.
As HMRC increasingly indicates its preference for payrolling of benefits as the method organisations use to report their benefits in kind, it’s been confirmed that tax agents will be able to register for payrolling benefits on behalf of their clients. Currently, a tax agent cannot do this.
Excitingly, a tax administration and maintenance day has been announced. This will see the release of multiple consultations and calls for evidence based on the tax system.
Ahead of tax administration and maintenance day, we’ve already seen the launch of a consultation which considers how HMRC can “simplify and modernise” the income tax system. This explores the possibility of moving to a “digital by default” approach, which will mean technology is further integrated into the tax administration framework. It also seeks feedback on the following:
- Improving the pay as you earn (PAYE) process
- A review of the self-assessment criteria
Tackling the Tax Gap
The tax gap is the difference between tax which should have been collected and the actual amount of tax collected during a tax year. Understandably, this is an area the government and HMRC is constantly focussing on. As with tax simplification, how to tackle the tax gap had its own dedicated area within the budget document.
An extra £47.2 million will be provided to help HMRC in the management of tax debts. This will allow HMRC to distinguish between those who can pay their tax debts but actively avoid doing so and those who are genuinely temporarily unable to pay. This means HMRC can appropriately tailor its approach to these individuals, providing support where required.
Tax fraud undoubtedly increases the tax gap each year. In recognition of this, the maximum sentences for the most egregious cases of tax fraud will be doubled, from the current seven years to 14 years.
We’ve also learned that the government will consult on the introduction of a new criminal offence for promoters of tax avoidance who haven’t complied with a notice from HMRC to stop promoting a tax avoidance scheme. The government will also explore how to speed up the process of disqualifying directors of companies involved in the promotion of tax avoidance.
Other Areas of Interest
Although this doesn’t impact payroll directly, I’m sure there are individuals reading this who must juggle work and childcare. A huge announcement on budget day was that free childcare would be made available for children from the age of nine months and above, rolled out in stages from 2024. This will make it easier for individuals with small children to return to the workforce earlier.
Additionally, the government will introduce a national pathfinder scheme for wraparound childcare in England to ensure that all families can access childcare in their local area between 8:00 a.m. and 6:00 p.m., again, allowing working parents more flexibility to carry out their jobs.
Hopefully, the spring budget has brought with it a feeling of calm and relief for payroll professionals. There aren’t many announcements which do not have an impact on the industry, so this is hugely welcome following a few extremely turbulent years for the profession.