The start of the 2016/17 tax year heralds the introduction of a number of significant changes to tax and business legislation. Here we outline some of the key measures coming into effect in April.
National Living Wage (NLW)
The new compulsory NLW takes effect on 1 April and applies to those workers aged 25 and over. The rate will initially be set at £7.20 an hour, and could potentially rise to £9 an hour by 2020. The NLW will provide all eligible employees with a premium of 50p an hour on top of the National Minimum Wage (NMW).
The Government has advised businesses to ensure that their payroll is up-to-date in time for 1 April, and recommends that companies clearly and accurately communicate the changes to all employees aged over 25. Workers aged under 25 will continue to receive the NMW at the appropriate rate for their age.
New penalties for employer NMW and NLW non-compliance
Also from 1 April, the penalties for the non-payment of the NMW will be doubled, from 100% of arrears owed to 200%, although these will be halved if paid within 14 days. The maximum penalty will remain £20,000 per worker. NLW non-compliance will be addressed in the same manner as NMW non-compliance.
April 2016 sees the introduction of a new 'zero rate' for 'relevant' apprentices on weekly earnings up to the Upper Secondary Threshold (UST), which is set at £827 in 2016/17. This effectively means that employers are no longer required to pay Class 1 secondary (employer) national insurance contributions (NICs) on earnings paid to qualifying apprentices. To qualify for this exemption, the apprentice must be aged under 25 and taking part in a government-recognised apprenticeship within the UK.
Meanwhile, the annual Employment Allowance for employer NICs will increase from £2,000 to £3,000. However, companies where the director is the sole employee will no longer be able to claim this allowance.
Changes to pensions taxation
From April 2016 the Government will introduce a taper to the annual allowance for those with adjusted annual incomes (including their own and their employer's pension contributions) over £150,000. For every £2 of adjusted income over £150,000, an individual's annual allowance will be reduced by £1, down to a minimum of £10,000.
In addition, the overall tax-advantaged pension savings lifetime allowance is being reduced from £1.25 million to £1 million. However, where an individual has significant pension savings, it may be possible to apply for Fixed or Individual Protection 2016. Certain conditions apply.
The new State Pension
The new 'flat rate', or single tier, State Pension comes into effect for those reaching State Pension age on or after 6 April 2016. The rate has been set at £155.65 per week, although this amount may vary in accordance with an individual's national insurance record.
New rules on dividends
6 April sees significant changes to the rules on the taxation of dividends. The 10% dividend tax credit will be abolished from the 2016/17 tax year and a new Dividend Tax Allowance of £5,000 a year will be introduced. Headline rates of dividend tax are also changing. The new rates of tax on dividend income exceeding the allowance will be set at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
Many of these changes are likely to have an impact on both businesses and individuals. To discuss how the new rules may affect you, please do not hesitate to contact us.