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Pre Budget Thoughts...the Final Instalment

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15 March 2010

RSM Tenon

Welcome to the fourth of this year’s pre-Budget thoughts from Andrew Hubbard, National Tax Policy Director.

Employers bear one of the largest burdens in the UK tax system. Not only do they collect vast amounts of PAYE on behalf of the government they also have to pay NIC on the wages and salaries they pay to their staff. Not for nothing do many employers regard NIC as little more than a tax on jobs.

The government often sees employment taxes as a good source of additional revenue. Partly this is the effect of scale – relatively small increases bring in lots of money because they apply to so many people – but also because employment taxes have a low political profile – the man or woman in the street probably has very little idea of the tax burden on employers and is therefore unlikely to be concerned about the cost of additional measures.

So, what should employers look out for on 24 March? *

National Insurance
National insurance rates have been creeping up alarmingly over the last few years and we will be watching out for any other increases. Announcements about NIC rates have hardly been a model of clarity in recent years: the announcement of a ½% rise in the PBR was in fact a further ½% rise over and above what had already been announced! So listen carefully for what he may or may not say about NIC. Further increases cannot be ruled out.

The PAYE system is creaking. It was designed for a different era, where people tended to have one full time job for life, and strains to cope with the much more fragmented employment patterns which today’s workforce are likely to face. The recent problems of incorrect notices of coding have thrown the PAYE system into sharp focus. There is a lot of thinking going on at the moment – in government and beyond – about the future of PAYE. Don’t expect it to be abolished on 6 April! – but we may get some hints about the long-term direction of travel. Taxing some or all benefits in kind through the payroll is something which is under active consideration and there may well be some news on this.

Flexible benefits
Should employees be allowed to chose the way that their reward package is made up – taking lower salary in exchange for more holiday or child care vouchers for example? For most employers and employees the answer is yes. Tax efficiency is often one of the factors in designing flexible benefits arrangements and HMRC are increasingly concerned that too much tax is being lost as a result of such schemes. But equally other parts of government are very keen to stress the advantages of flexible benefits – just remember the furore over the planned withdrawal of childcare vouchers.

Employers are caught in the middle of all of this and are finding it increasingly difficult to design attractive employment packages with any degree of certainty over the tax consequences.

This does really need sorting out once and for all and I am hoping that we will get something in the Budget – a consultation document would be a useful way of taking the debate forward.

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One of the things that these stats don't incdaite is the other factors that I am interested in knowing.Age, gender, occupational sectors that people worked in prior to becoming unemployed. Educational levels of the individuals. I suspect that there are people who have other factors working against them. Is part of this number the ex-offender population? I also wonder if the rates are in states who have lost certain types of jobs? We don't do much manufacturing in my part of the O-State. We have a lot of jobs that are technically based. I also question if the people ran into the same wall that I did. There are some employers who think that they can offer sub-standard wages and you'll jump for them. I refused to even talk to people who started out below my requirements. Which was not easy to do. I have a lot of expertise and experience. I am not earning what I use to but I also know how much I need to live.

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