There were relatively few employment tax changes in the Autumn Statement but the Chancellor did announce the well-trailed increase in the National Living Wage. This, combined with the Health and Social Care Levy announced in September will have an impact on businesses’ wage bills who will be looking to see what they can do to manage these costs. 

National Living Wage (NLW) and National Minimum Wage (NMW)

The Chancellor has announced an increased in the NLW from April 2022. For workers aged 23 and over, the NLW will increase by 6.6% from £8.91 to £9.50 per hour. Alongside the NLW increase announced today, the Commission have also recommended significant rises in the NMW rates for younger workers. The 21-22 year old rate will increase to £9.18, narrowing the gap with the NLW and leaving this age group on course to receive the full NLW by 2024. NMW rates for 18-20 and 16-17 year olds will also increase in line with underlying wage growth. The minimum wage for apprentices will increase by 51p, bringing it in line with the 16- 17 year old rate. 

Health and Social Care Levy (HSC Levy)

As previously announced on 7 September 2021, the government will legislate for a new 1.25% HSC Levy. The HSC Levy will apply UK wide, to the same population and income as Class 1 (employee, employer) and Class 4 (self-employed) National Insurance contributions (NIC), and to the main and additional NIC rates. The Levy will not apply to Class 2 or Class 3 NIC.

The government’s proposals are as follows:

  • From 6 April 2022, there will be a temporary 1.25% increase in Class 1, 1A and 1B NIC rates to 15.05% for employers, and in Class 1 NIC rates for employees to 13.25% (below the NIC Upper Earnings Limit) and to 3.25% (above that limit); and
  • From 6 April 2023, the new HSC Levy will apply to both employers and employees (including those above the state pension age) at a rate of 1.25% percent (i.e. a combined rate of 2.5%) – Class 1, 1A and 1B NIC rates will then revert to their current levels.

We would encourage employers to assess the likely implications of the NLW/NMW and the NIC/HSC increases for their employees, contingent labour and businesses. Larger employers should reflect on whether it would be beneficial to undertake a communication exercise for employees and off-payroll workers to highlight these changes; covering their overall impact and drawing out broader consequences such as potential salary sacrifice savings.

Given these additional costs, the proposed HSC measures may renew some businesses’ focus on salary sacrifice as a means of cost-efficient remuneration. Many employers already offer pension contributions, bikes for work and childcare on this basis where possible. However, for those who do not – and are able to do so – the government’s proposals may provide reason to reassess employee benefit offerings. Additionally, given the 2% benefit-in-kind rate will apply to fully electric cars from 2022-23 until 2024-25, the current peaks in the cost of fuel and half of drivers are now considering switching to a fully electric car, employers may also wish to consider providing electric cars under a salary sacrifice arrangement to open up company car provision to more employees whilst also achieving significant tax and social security savings under existing benefit rules.

Get in touch

If you have any queries on the topics covered above, please contact Eunan Ferguson, director, KPMG in Belfast.