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Autumn Statement promises rise in the minimum wage

November 24, 2016  /   No Comments

Autumn Statement promises rise in the minimum wageIn his first Autumn Statement yesterday, Chancellor Phillip Hammond pledged that the Government will increase the minimum wage to £7.50 as of April 2017.

Raising the UK’s productivity was a made a big focus by the Chancellor in his first (and now apparently last) Autumn interim budget statement, as he announced that as of next year the Autumn Statement will be abolished, with the main Budgets happening in the autumn from 2017, along with a ‘Spring Statement’ from 2018.

IR35 reform within the public sector was a key announcement affecting contractors and the recruitment businesses which place them. Despite unanimous opposition to the changes proposed by HMRC during the summer, the Government has decided to press on and introduce them on 6 April 2017.

Therefore, from April 2017 the entity which pays the contractor’s limited company (most likely to be either the public sector body or a recruitment agency) will become responsible for assessing IR35 and deducting the resulting tax from payments made to the limited company.

The main announcements included:

  • The income tax threshold will be raised to £11,500 in April, from £11,000.
  • Higher rate income tax threshold to rise to £50,000, from £45,000.
  • The minimum wage (National Living Wage) will rise to £7.50 from April 2017.
  • Employee and employer National Insurance thresholds to be equalised at £157 per week from April 2017.
  • Tax savings on salary sacrifice and benefits in kind are to be stopped, with exceptions for ultra-low emission cars, pensions, childcare and cycling.
  • Insurance premium tax to rise from 10% to 12% next June.
  • Fuel duty is frozen.
  • Universal Credit taper rate to be cut from 65% to 63% from April 2017 at a cost of £700m.

The Office for Budget Responsibility (OBR) upgraded its 2016 growth forecast to 2.1%, which it downgraded to 1.4% for 2017, while predicting continuous growth of 1.7% in 2018, 2.1% in 2019 and 2020, and 2% in 2021.

There have been mixed reactions from recruitment industry professionals and industry bodies to the main announcements.

Lee Biggins, Founder and Managing Director of CV-Library, said the budget “brings positive news to many workers across the nation”.

“The Chancellor’s optimistic outlook on the UK’s labour market is extremely positive to see. Our economy’s employment is currently at a record high and in order for this to continue, we must tackle the upcoming challenges head-on and prepare to be resilient as we embark on our exit from the EU. Furthermore, the increase in the National Living Wage brings positive news to many workers across the nation and it is good to see that the government recognises the need to raise pay in order to boost productivity and ensure that our country is keeping up with some of our European counterparts.”

Julia Kermode, Chief Executive of The Freelancer & Contractor Services Association, said:

“As the representative body that is committed to setting standards and stamping out unethical practices, FCSA welcomes any measures that tackle disguised remuneration schemes. Such schemes have become more prevalent, some with particularly complex offshore structures, which entice contractors and self-employed by the high returns offered. It has become increasingly difficult for legitimate businesses to compete with these schemes, so we fully support the Chancellor’s move to tackle them.

“However, we are outraged that the 5% tax-free allowance for business expenses will be removed from off-payroll workers in the public sector. The new complexities around IR35 status means that professional contractors and interims will be forced into making deemed payments throughout the year, which in turn means that they will need more accountancy support going forwards to reconcile their financial affairs, and therefore more justification for the 5% allowance.  Once again the hardworking freelancers and contractors who are propping up the UK economy are being penalised.

Samantha Hurley, Operations Director at The Association of Professional Staffing Companies (APSCo), commented:

“The Government has announced that it is to introduce IR35 tax changes, which will result in Personal Service Company contractors in the public sector losing their right to determine their tax status. We are furious that the Government has ignored all industry stakeholders and has overridden the concerns of its own departments. This change will give recruitment firms and other engagers, who pay the contractor, liability and responsibility for operating payroll and paying the correct taxes to HMRC. These changes will convert the UK from having one of the most flexible labour markets in the world to having one of the most inflexible labour markets in the world.”

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