How does the 2018 Budget impact employers and employees?

With over 3.3 million more people in work since 2010 and 800,000 more jobs forecast by 2022, it is important that both employees and employers understand the impact of the 2018 budget.

The Autumn Budget 2018 was delivered on 29 October 2018 by the Chancellor, Philip Hammond. Here are some of the key points impacting individuals and businesses from an Employment Law perspective from his 72 minute speech:

National Minimum Wage:

The Government has decided to increase the National Minimum Wage from April 2019 to the following rates:
Apprentices: £3.70 an hour → £3.90 an hour
Under 18 years old: £4.20 an hour → £4.35 an hour
18 to 20 years old: £5.90 an hour → £6.15 an hour
21 to 24 years old: £7.38 an hour → £7.70 an hour
The Government has also decided to increase the National Living Wage from £7.83 an hour to £8.21 an hour. This applies to workers aged 25 years old and over. The 4.9% increase is expected to positively impact approximately 2.4 million workers, leading to a £690 annual pay rise for full-time workers.

Personal Allowance:

An individual’s Personal Allowance is the total income you are allowed to earn without it being subject to income tax. The Government has decided to increase an individual’s Personal Allowance from £11,850 to £12.500 from April 2019. This change comes a year earlier than first planned and will be sustained in 2020.

Higher rate income tax threshold:

An individual is required to pay income tax at a rate of 40% when their earnings reach the higher rate income tax threshold. This figure is set to rise in April 2019 from £46,350 per annum to £50,000 per annum. These changes to the higher rate income tax threshold and personal allowance will generally mean that most individuals will pay less income tax from April 2019.

National Insurance

It is worth noting that National Insurance is set to increase in line with these changes to income tax calculations in April 2019. Currently the threshold for 12% national insurance to be paid is between £8,424 per annum and £46,834 per annum. This threshold will change and increase to effect people earning between £8,632 per annum and £50,024 per annum. Depending on your earnings, it is likely this will reduce some of the savings that would have occurred from the changes to income tax calculations.

Change to apprenticeship levy

The apprenticeship levy was introduced on 6 April 2017 to help fund apprenticeship training. It is a tax charged to UK employers who have a pay bill of over £3 million each year. Previously smaller employers had to pay 10% towards the cost of apprenticeship training to access funds provided by the apprenticeship levy. The Budget has reduced this from 10% to 5%, with the Government paying the remaining 95%. There is currently no fixed date for when this change will be introduced.

Employment Allowance

The Employment Allowance (EA) can reduce an employers National Insurance bill by £3000 a year if you are an eligible business or charity. The Budget has restricted access to the EA to smaller businesses who make employer National Insurance contributions of less than £100,000. These changes are expected to be implemented from 2020-2021 and are expected to ensure around 93% of employers claiming the EA remain eligible.

Annual investment allowance

When businesses purchase plant and machinery, they can use their annual investment allowance (AIA) as a form of tax relief. From 1 January 2019, the AIA will increase from £200,000 to £1 million for a two year period. This will help to keep businesses developing and investing ahead of Brexit.

Business rate relief

The Government have decided to reduce business rates by a third for smaller shops and retailers (with a rateable value of less than £51,000). The change will be implemented in April 2019 and is expected to result in savings of £900 million, with average savings of £8000 for 90% of independent businesses.
In addition to the business rate relief for businesses, public lavatories will receive 100% business rates relief.

Supporting the high street

Approximately £675 million has been allocated to improve high streets by developing transportation links and renovating old properties and empty buildings.
The move to support smaller businesses and shops has been further supported by the introduction of a 2% digital services tax on revenue made in the UK by large digital firms. The tax will be implemented from April 2020 and is forecast to raise over £400 million a year.
Interested in more?
To find out other changes made by the Autumn Budget 2018, click here.

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