Mini-Budget 2022: Employment and Mobility tax changes

Unlike Spring Statement 2022, which was relatively quiet, today’s announcements are in complete contrast.

We clearly see the themes of reducing payroll costs and adding labour flexibility to the economy, while appealing to international organisations to invest in the UK, as part of a growth agenda.

Income tax cuts and bonus caps abolished

The headlines proved correct and the government is intending to remove historic regulations affecting the financial services sector – but the details, inevitably, will follow.

More specific and perhaps surprising, is the additional income tax rate reduction from 45% to 40% from April 2023, and the lowering of the basic rate from 20% to 19% a year earlier from April 2023. Will more disposable income reinvigorate the economy?

Impact on global mobility

Income tax reductions will be welcome to employers of UK inbound tax equalised employees who are currently facing a top grossed-up tax rate of approximately 90%. The reduction will also benefit outbound assignees’ net pay position, though the host country gross-up employer cost will increase and employers need to consider this.

A sector that should benefit is the UK financial services industry with the removal of bonus caps. Skilled migration to the UK is part of this government’s strategy.

Health and Social Care Levy and National Insurance Contributions

The increase to the National Insurance Contributions (NIC) rates introduced in July 2022, and the Health and Social Care Levy (HSCL) which was applied from April 2023, have both been reversed.

This means:

• from 6 November 2022, the current employee and employer rates of Class 1 NIC will revert back to pre-July 2022 rates, a reduction of 1.25%
• the 1.25% HSCL which would have applied from April 2023, will not be implemented
• the increase to the NIC threshold at which NICs start to become liable, has not been reversed.

For the 2022/23 tax year, employers who are liable to Class 1A NICs or Class 1B NICs the rate is aggregated to 14.53%.

Employers will welcome the reduction of payroll costs and employees will see their after-tax pay rise. The November change will mean yet another change for payroll systems and already stretched payroll teams to communicate, implement and test. This will also be welcome news to employees who are over state pension age to whom the levy would have applied.

Impact on the global mobility

The NIC raise cancellation will be a pleasing cost reduction for UK inbound movement where individuals and their employers may no longer remain within their home country social security schemes.

Off-Payroll Working/IR35

The Off-Payroll Working legislation introduced in 2017 and 2021, will be repealed from April 2023.

From April 2023 the ‘old’ IR35 rules will apply, which places the burden of assessing employment status and responsibility for applying PAYE to ‘inside IR35’ payments back to the contractor’s intermediary.

The detail on this will be critical, especially for those contractors who were deemed inside IR35 and moved to payroll arrangements or forced into umbrella companies. It will be interesting to see how this develops.

Impact on the global mobility

With increasingly varied worker engagement also seen within global mobility, the impact of the proposed changes may lead to employers further engaging with mobile contractors again, though caution needs to given to their classification in non-UK countries to triage exposure to off payroll work rules in other countries.

Investment Zones

It was announced new Investment Zones will be created in the UK to drive growth and lowering taxes.

Employers in designated Investment Zone areas will benefit from a zero rate for Employer National Insurance Contributions on new employee earnings up to £50,270 per year. This may result in intra-UK talent mobility and raises interesting questions from a payroll implementation perspective.

Company Share Option Plan (CSOP)

From April 2023, the limit at which qualifying companies can issue share will double to £60,000 of CSOP options to employees.

Additionally, the ‘worth having’ restriction on share classes within CSOP will be eased.

Impact on the global workforce

The increase in CSOP limits will be of particular interest to multi-national employers that operate LTIPs, who may conclude if now is the right time again to consider implementation of UK tax approved plans.

For any queries in the meantime, please contact Dinesh Jangra or your usual Crowe contact.