Mini Budget 2022- Employment Taxes

Company Car Tax Changes

With the decline in the number of non-electric vehicles (EVs) being reported as company cars and a huge increase in the number of EVs being chosen as replacements, it is perhaps unsurprising that the Chancellor has chosen to revisit the tax generated from EV company cars. However, the Government still wishes to encourage  the choice of an electric vehicle rather than traditionally fuelled cars to support 2026 emissions targets.

An EV is currently taxed as a benefit in kind (BIK) when made available for private use by an employer for an employee with a cash equivalent of 2% of the list price, and the government committed to retaining this rate until April 2025.

Nevertheless, in the Autumn Statement, it was announced that the BIK rate will increase to 3% for the 2025-26 tax year, 4% for 2026-27 and 5% for 2027-28. Similarly, all non EVs will also see the same 1% increase per annum over the same timescale.

This change has been anticipated by the Fleet industry and they, along with employers, will be pleased that we have certainty for next 4 years. Despite the increases announced, EVs are still a very attractive proposition for both employee and employer alike - especially when provided via salary sacrifice.

NIC threshold freeze

July’s increase in the workers NIC threshold from £9,880 to £12,570 (aligning it with the income tax personal allowance) and the reversal this month of the 1.25% NIC increase, due to the removal of the Health & Social Care Levy, provided welcome savings of £480 per annum on average.    

Freezing the NIC thresholds for workers and employers alike comes as no surprise, but for employers this will represent a real-terms increase in their employment costs with the secondary threshold remaining at £9,100 until April 2028. The Employment Allowance remains at £5,000 per annum and the government estimates that this will mean 40% of employers will not be affected by the freezing of the thresholds. 

However, those employers who are affected by rising NIC costs will also have to cope with the increase in the National Living Wage to £10.42 per hour (representing an increase of a little over £1,600 per full time NLW employee per year) from April 2023. This will mean that it is more important than ever to ensure that employment spend is targeted where it is most effective, on the benefits most valued by employees.

Furthermore, employers need to ensure that they do not risk having to pay interest and penalties if they get their employment taxes wrong.   

Prudent employers should review both the benefit package offered to employees and their compliance policies and procedures to ensure that they maximise the value of their employee spend.  
 

If you have any questions, please contact Geraldine Browne or Renee Dawson.

With thanks to our colleagues in BDO UK.