United Kingdom: Mini-budget - Employment and employment tax aspects

In brief

The government has announced its Growth Plan 2022. The key employment-related aspects are: the repeal of IR35 reforms introduced in 2017 and 2021; the removal of the bankers' bonus cap; requirements for trade unions to put pay offers to a member vote and to maintain minimum service levels during strike action; reductions to income tax rates; an increase to the company share option plan limits. The government also reconfirmed plans to reverse a rise in National Insurance contributions and to scrap a planned health and social care levy.


Key takeaways

The new conservative government's Growth Plan 2022, announced on 23 September 2022, contains a number of employment law and employment tax measures. Some of the details remain to be confirmed, but what we know so far is as follows, along with our initial thoughts:

  • IR35 reforms: the IR35 regime was reformed in 2017 (for the public sector) and 2021 (for the private sector), in essence, to place responsibility on an end-client to determine whether an individual would have been an employee for tax purposes but for the existence of an intermediary (typically a personal service company (PSC)). These reforms will now be repealed from 6 April 2023.

Adapting to the IR35 reforms was a significant compliance burden for many organisations. Some may be reluctant to embark on a process of undoing all that work and may, for example, prefer to stick with umbrella company arrangements that were set up in response. However, contractors might now push to return to a classic PSC model, where they are responsible for the tax status determination and the end client is largely protected from the risk of an unexpected income tax bill. There are some benefits to this for end clients as the PSC model can reduce the risks of inadvertent status misclassification from an employment rights perspective, as well as a tax perspective.

  • Bankers bonus cap: in the wake of the 2008 financial crisis, a cap on bankers' bonuses was introduced. In some instances, elements of fixed pay were increased and some role-based allowances were introduced. The government's announcement offers financial institutions more flexibility in determining the composition of overall compensation packages, but it remains to be seen whether fixed pay and allowances will be reduced or removed in preference for discretionary, variable bonuses.
  • Strike action: in response to the ongoing series of strikes in the transport sector, the government has announced that it intends to require unions to ensure that a minimum level of service is maintained during strike action. In addition, trade unions will be required to put pay offers to a member vote before they can take strike action.
  • Income tax rates: from April 2023, the lower rate of income tax will be reduced to 19p in the pound, which is a year earlier than previously planned. In addition, the additional rate of tax will be scrapped. In its place will be a single higher rate of income tax of 40%.
  • Company share option plans (CSOPs): the limit for UK tax favourable CSOPs is being increased from the current GBP 30,000 to GBP 60,000 from April 2023. This is part of the government's wish to help companies that become too big for EMI options to incentivise their workforce.
  • National insurance contributions (NICs): the rate of NICs for both employers and employees increased by 1.25% in April this year. As previously announced, from 6 November 2022, this will be reversed. In addition, the new health and social care levy that was due to be introduced in April 2023 will not be introduced.
  • Office of Tax Simplification (OTS): this is due to be closed, on the basis that the aim of tax simplification will be embedded throughout the government. The OTS will, however, continue to gather evidence on its current review of hybrid and distance working arrangements

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