In advance of the new tax year, the 2021 Budget has been released and is in the process of being implemented. The government has stated its goal of an investment-led recovery to address the economic and fiscal impacts of COVID-19. To that end, the budget extends certain programs introduced in 2020 and includes new incentives for employers that will launch in 2021. Further, the budget includes typical tax updates, such as the amount of the personal allowance for 2021-22, and some tax forecasts through 2026. This blog highlights what employers should know about for the upcoming tax year and into the future.
The Coronavirus Job Retention Scheme (CJRS) is being extended through September to support businesses that continue to be impacted by COVID-19. The CJRS will operate in its current form through the end of June 2021, with changes coming into force in July.
Specifically, starting in July, employers will have to contribute toward an employee’s furlough pay while the government’s subsidy decreases. Employers will contribute 10% in July and then 20% in August and September. From the perspective of an employee, nothing is changing as they will continue to receive up to the same amount each month.
The government continues to update guidance that employers should be following when operating the CJRS. Employers should continue to check for updates to published guidance and should pay special attention to final submission deadlines. Once the program ends, the HMRC may publish additional details about any follow-up or audits it may conduct.
In addition, due to the duration of the CJRS, it is possible that some employees will have been furloughed in both the 2020-21 and 2021-22 tax years. Extended regulations continue to provide that an employee’s statutory pay must be based on their usual hours of work and earnings, and not their reduced furloughed hours and pay. Employers may want to review their systems and processes to ensure that they will be able to accurately calculate statutory pay for employees who have been furloughed.
The Statutory Sick Pay (SSP) rebate program, which allows eligible small- and medium-sized business to receive reimbursement for the cost of SSP that is provided for COVID-19 reasons, is also being extended. Employers are able to claim up to two weeks of SSP costs per employee. It is anticipated that this will be the final extension of the rebate program. Employers should keep alert for more details about the extension, as the existing employer guidance has yet to be updated.
Finally, the budget includes an extension to the tax exemption for reimbursement payments that employers make to employees for a COVID-19 antigen test and qualifying home-office equipment. Regulations have already been issued, which provide that this relief is available on amounts reimbursed on or after 11 June 2020 but before the end of the 2021-22 tax year. Employers who intend on reimbursing the cost of COVID-19 tests and home office equipment may want to set their own internal deadlines for employees to submit reimbursement requests to ensure they can be processed before the end of the next tax year.
The government is going to provide additional funding for traineeships and payments to employers who hire new apprenticeships. There will be an additional £126 million in England for high quality work placements and training for 16 to 24-year-olds. Employers will be eligible to receive £1,000 per trainee (this is a one-time payment per eligible trainee). For employers who hire new apprentices, there will now be £3,000 available per hire, an increase from £1,500 under the prior rules. Employers may learn more about funding for trainees here.
The policy goal of the Lifetime Skills Guarantee is to ensure that everyone has the right skills they need at every stage in their lives. Or in context of broader discussions, how to best develop a workforce armed with the right skills to fill the jobs of today and tomorrow. For instance, the government launched a “Plan for jobs” initiative in 2020 to bolster opportunities for people to gain new skills or upskill, and a White Paper has been published about a Lifetime Skills Guarantee. Employers may want to think about their current approach for job training and skills development, and will want to stay alert for other resources or programs that may be available in the near future to help their workforce remain agile and competitive.
As result of a business productivity review in 2019, the government discovered that UK small- and medium-size companies (SMEs) have productivity gaps compared to international peers. They attribute that gap in part to low adoption rates of basic productivity technology, including accountancy software, customer relationship management systems, supply change management, and enterprise resource planning. To help SMEs be more efficient and mature, the government is looking to launch a program to encourage businesses to invest in productivity-enhancing software. The proposal is to provide a voucher covering half the cost of approved software applications, up to £5,000. The government will also create an online platform to provide advice about acquiring and using certain types of software. While this will be tailored to small and medium businesses, employers of all sizes may find the online advice platform to be useful when considering how software can help transform their businesses.
Freeport tax sites are expected to be launched this year, although the timeline is unclear. The idea is to target job creation in areas of need – there will be defined geographical areas in which qualifying businesses will be relieved of some National Insurance Contributions. There was a bidding process to seek designation as a freeport tax site, wherein the government was seeking to find up to ten freeport locations. As the name implies, the bidding was only open to areas where there was a least one port of any mode, which could be rail, air, or sea. Some additional details about the bidding process is included here.
Because there is no existing legal authority for this type of program, Parliament will need to make necessary laws to bring freeport tax sites into effect. Once laws and regulations are enacted, employers will want to review them to determine if they are eligible or could be if they started operating in a freeport tax site. There may be unique recordkeeping or PAYE requirements that apply when employing people in a freeport tax site. As such, employers may need to consult with their payroll provider and other advisors about how to operate the scheme as some modifications to existing systems or processes may be needed.
To build on the new points-based immigration system, the government plans on launching a new elite points-based visa, which will include the ability to fast-track a visa application for individuals with a job offer from a recognized “scale-up” company. There are also plans for a new Global Mobility visa to help overseas businesses establish a presence in the UK, or to simply help transfer staff when needed. Both these visas are expected to be available in the spring of 2022; however, there will likely be more details coming this year. If employers haven’t familiarized themselves with the new immigration system, now would be a good time to come up to speed and start considering if these new visa options would be useful in the future.
The budget affirms changes that were previously announced, such as the NIC thresholds for 2021-22, but also makes commitments about the personal allowance and higher rate threshold through 2026. Specifically, the personal allowance, which is the amount an employee earns before incurring tax, is increasing to £10,570 and is expected to remain at that level through 2026. The higher rate threshold (HRT) will increase to £50,270 and is also expected to remain at this level through 2026. NIC thresholds are increasing by CPI as previously announced (rate increase and other government policy are often based on the change in CPI). This is resulting in nominal increases to the earnings threshold. To align with the personal allowance and HRT, the upper earnings limit for NICs is expected to remain at the new level through April 2026.
The net impact of these changes will be higher tax mostly on higher income earners in 2021-22, while most other workers will see little if any change to their tax and NICs. Employers may reference all the applicable rates and thresholds for the 2021-22 tax year here.
The government is using the 2021 budget to develop a fiscal roadmap through 2026, which provides employers with some key insights into what government and tax policy will be like over the next several years. The UK government experienced record levels of borrowing in 2020-21 to address COVID-19, while economic output also decreased. There is now a desire to pay down new debts while also providing continued support for businesses and communities.
The budget provisions are expected to boost business investment by about 10%, peaking in 2022-23, which is also when the government is expecting debt levels to plateau. By 2024, various short-term relief that businesses have been enjoying will end or be tapered out. In addition, corporation tax is expected to rise through 2026, along with changes to VAT that will bring in more revenue from businesses. HMRC, on the other hand, intends to recover additional money from individuals or employers who have engaged in tax avoidance – this is a continuation of a years-long effort to prioritize enforcement of tax defiance.
For employers, they will want to start planning to pay more through 2026 and should consider doing a review of their pay policies and practices to reduce any potential risk of HMRC enforcement actions for tax avoidance. At the same time, employers may have some assurance that PAYE tax and NIC will not be subject to major revisions for a couple years. All said, employers should use the forecasts in the 2021 budget as part of their medium and long-term business planning.
Disclaimer: The information provided in this post is provided for informational purposes only and should not be relied upon or construed as legal advice and does not create an attorney-client relationship. You should review with your legal advisors how the laws identified in this post may apply to your specific situation.
Adam Wysopal is Compliance Counsel at Ceridian with years of experience advising organizations on regulatory obligations and internal compliance programs. Adam is passionate about technology, innovation, and collaboration. In his current role, Adam enjoys being able to support development teams in their continuous effort to ensure Ceridian’s HCM solutions keep up with evolving employment-related compliance needs.View Collection