National living wage – rising wage costs for employers

National living wage – rising wage costs for employers

The National Living Wage

From 1 April 2016, following the introduction of the new National Living Wage, all workers aged 25 and over are legally entitled to at least £7.20 per hour. This was, however, until the Chancellor delivered his Autumn Statement, where he announced that the National Living will increase by a further 30p from April 2017 to £7.50 per hour. The National Living Wage rates are set to increase gradually alongside rises in the National Minimum Wage, and is projected to rise to more than £9 per hour in 2020.

 

A four-step checklist for employers following the announcements is:

  1. Know the correct rate of pay (including the National Living Wage)
  2. Find out which staff are eligible which rates
  3. Update the company payroll and keep an eye out for future announcements
  4. Communicate the changes to staff as soon as possible

National Minimum Wage

The government announced increases to the National Minimum Wage which came into effect on 1 October 2016, after accepting recommendations for the new rates from the Low Pay Commission (LPC).

 

  Current rate Rate from 1 April
Over 25 £7.20 £7.50
21-24 year olds £6.95 £7.05
18-20 year olds £5.55 £5.60
16-17 year olds £4.00 £4.05
Apprentice rate* £3.40 £3.50

*This apprentice rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year. All other apprentices are entitled to the National Minimum Wage for their age.

The table below shows the historic wage increases for the National Minimum Wage:

Year 21 and over 18-20 Under 18 Apprentice
2015 £6.70 £5.30 £3.87 £3.30
2014 £6.50 £5.13 £3.79 £2.73
2013 £6.31 £5.03 £3.72 £2.68

Moving forward – more compliance for employers

National Minimum Wage and National Living Wage rates will now change every April, as opposed to every October and April respectively.

This is a positive change, but does mean that the above current rates will only be effective up until 31 March 2017.

Following the introduction of the new National Living Wage in April 2016, and the imminent increase of the NLW, this will see be the fifth round of wage increases (in some form) in just two years. It is therefore unsurprising to see that many small (and indeed large) business owners are finding running their payroll an increasingly complex and time-consuming task. The compliance obligation on employers has never been greater and there has never been a better time to consider outsourcing your payroll.

HMRC

HMRC have also recently published ten of the most bizarre excuses used by employers to try and avoid paying the NMW. The published to aid a new awareness campaign to encourage workers to check their pay to ensure they are earning the legal minimum for their age, ahead of the increase on 1st April 2017.

The top ten excuses are:

 

  1. The employee wasn’t a good worker so I didn’t think they deserved to be paid the National Minimum Wage.
  2. It’s part of UK culture not to pay young workers for the first 3 months as they have to prove their ‘worth’ first.
  3. I thought it was ok to pay foreign workers below the National Minimum Wage as they aren’t British and therefore don’t have the right to be paid it.
  4. She doesn’t deserve the National Minimum Wage because she only makes the teas and sweeps the floors.
  5. I’ve got an agreement with my workers that I won’t pay them the National Minimum Wage; they understand and they even signed a contract to this effect.
  6. My accountant and I speak a different language – he doesn’t understand me and that’s why he doesn’t pay my workers the correct wages.
  7. My workers like to think of themselves as being self-employed and the National Minimum Wage doesn’t apply to people who work for themselves.
  8. My workers are often just on standby when there are no customers in the shop; I only pay them for when they’re actually serving someone.
  9. My employee is still learning so they aren’t entitled to the National Minimum Wage.
  10. The National Minimum Wage doesn’t apply to my business.

Scott Sanderson

Scott Sanderson Partner

Scott Sanderson began his career with Hawsons and trained as a Chartered Accountant, becoming a partner in 2015, specialising in the healthcare sector and small businesses. For more details and advice, please contact Scott on [email protected] or 0114 266 7141.[/author_info]

Manufacturing 2017 Budget review and analysis

Manufacturing 2017 Budget review and analysis

The Chancellor Philip Hammond presented the last Spring Budget on Wednesday 8 March 2017. In his speech the Chancellor was keen to point out that he wanted the tax system to be fair, particularly in relation to the distinction between employed and self-employed individuals. In this article, we look at how the Chancellor’s Spring Budget impacts the manufacturing sector.

In the Budget speech the Chancellor announced that he has requested a report to be delivered in the summer on the wider implications of different employment practices. Also, the Budget included changes to NICs and the Dividend Allowance.

In December and January the government issued a number of clauses, in draft, of Finance Bill 2017 together with updates on consultations.

The Budget updates some of these previous announcements and also proposes further measures. Some of these changes apply from April 2017 and some take effect at a later date.

Our summary focuses on the issues likely to affect you and your business.

 

Main Budget tax proposals

Our summary concentrates on the tax measures which include:

  • increases to the Class 4 National Insurance rates – Update 15/03/17 – Chancellor withdraws plans to increase NI.
  • a reduction in the Dividend Allowance
  • changes to the timing of Making Tax Digital for smaller businesses.

Previously announced measures include:

  • increases to the personal allowance and basic rate band (a decreased band for Scottish residents)
  • the introduction of the Apprenticeship Levy
  • changes to corporation tax loss relief
  • the introduction of an additional inheritance tax residence nil rate band
  • changes for non-UK domiciled individuals.

Main Budget announcements (manufacturing specific)

  • Originally raised NIC rates – but this was later withdrawn by the Chancellor
  • Those under the VAT threshold have an extra year (until 2019) to prepare for Making Tax Digital (MTD)
  • Introduction of T-Level technical education routes
  • Talent Funding programme to fund additional PhD places
  • Simpler administration for R&D tax credits
  • Dividend allowance will be reduced from £5,000 to £2,000 from April 2018

 

Manufacturing 2017 Budget impact


Little to report amid economic uncertainty 

Although there is little to report, no news could be good news for the sector, in a period of economic uncertainty. There are a few details that do affect the manufacturing sector though, such as the delay to the Making Tax Digital project (MTD). The main reason many businesses are anxious for the introduction of MTD is because of the quarterly reporting system – requiring businesses to file, effectively, five tax returns. HMRC haven’t released much detail about this project so there is still a lot of uncertainty surrounding MTD, along with the extra burden of filing even more tax returns. However, the delay of an extra year (for those under the VAT threshold) is welcome news as we prepare for what is undoubtedly a huge change to the way we conduct tax returns.

Introduction of T-Level technical education routes

The Chancellor announced in his first and last Spring Budget a new T-level system. This is intended to put technical education courses on an equal footing with academic courses. This new system will increase the number of hours students train by 50% and replace the current 13,000 qualifications with 15. In order to pay for the new system, the Chancellor announced an extra £500m a year and the changes are expected to come into effect from 2019.

This is certainly welcome news to the sector, and Chris Hill, Manufacturing Specialist at Hawsons, commented: “The introduction of the T-levels is good news for the sector, especially at a time when there is a skill shortage threatening to put growth at risk and the economic uncertainty that currently surrounds Britain. Although it won’t solve the issues that currently face the sector, it’s certainly a start.” Coupled with the T-levels is the Talent Funding programme, aimed to fund additional PhD places and many of these places will be within STEM disciplines.

R&D Tax Review

There are two types of tax reliefs for eligible R&D expenditure. Under one of these, qualifying companies can claim a taxable credit of 11% in relation to eligible R&D expenditure. This is known as the Research and Development Expenditure Credit (RDEC). To further support investment, the government will make administrative changes to the RDEC to increase the certainty and simplicity around claims and will take action to improve awareness of R&D tax credits among small and medium-sized enterprises.

Dividends

The Dividend Allowance will be reduced from £5,000 to £2,000 from April 2018. The aim of this is to decrease to the tax difference between the self-employed and those working through a company. The government expect that even with the reduction in the Dividend Allowance to £2,000, 80% of ‘general investors’ will pay no tax on their dividend income. However, the reduction in the allowance will affect family company shareholders who take dividends in excess of the £2,000 limit. The cost of the restriction in the allowance for basic rate taxpayers will be £225 increasing to £975 for higher rate taxpayers and £1,143 for additional rate taxpayers.

More from our manufacturing experts

You can find all of our latest manufacturing sector news and newsletters here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Chris Hill Senior Partner

Chris Hill acts as commercial partner for both corporate and non-corporate clients and has worked for Hawsons throughout his career. For more information or advice on anything covered in this article, please contact Chris on [email protected] or 0114 266 7141.

Renewable Energy

Renewable Energy

Anaerobic Digestion (AD): Biogas

Renewables have grown rapidly in the last 10 years, mainly because of public financial support. However, the cost to the Exchequer has seen support levels cut over the past few years. Actual renewable energy was 8.3% in 2015 compared to a target of 15% in 2020.

AD is the natural process of digestion of organic material in an oxygen free environment by micro-organism. The process is usually based on waste products but any non-woody organic matter can be used. It is similar to composting but is normally in sealed containers to exclude air on which the biogas is dependent.

Animal slurry is the focus but a low biogas yield is produced and poultry litter gives 2-4 X biogas output of pig slurry. In Europe, crops are often used and maize silage has a high energy yield – 10 X that of slurry. Others include food waste and supermarket waste.

Consistency and reliability in quality and quantity is vital to the process. AD produces biogas which is:

  • 40% carbon dioxide
  • 60% methane
  • and a digestate (soil improver)

Biogas is used in a combined heat and power generator and electricity is exported. Heat aids the process but can be sold if there is a local market. Biogas can be cleaned – remove CO2 to produce bio methane (natural gas).

Value of AD: 

  • Electricity – generation tariff FIT

– export tariff under FIT or the market value of electricity

  • Heat – need local market to take advantage of this
  • Gate fees – for waste coming in
  • Digestate – fertiliser value

The sector is still in its infancy so data available on returns is low while potential system costs are £3,000 to £3,500 per KW power output.

  • Typical 400-500 KW plant capital cost can be £1.5 – £2m
  • Depreciation normally over 15 years
  • Bank typically give 10 year loans

There are specialist companies who build and provide access to finance e.g. Qila Energy. A 450 KW plant may need 2 acres of land and planning approval requires it to be a suitable distance from residential dwellings. A high capacity electricity connection should ideally be close as a distance of over 700m can impact on economics of a scheme.

  • A heat consumer needs to be 500-600 metres away;
  • There are significant planning issues and;
  • Good economies of scale potentially exist

Contacts in the sector are:

  • Renewable Energy Association: 020 7925 3570 or www.r-e-a.net
  • Anaerobic Digestion & Biogas Association: 0845 292 0874 or www.abdiogas.co.uk
  • Qila Energy: QilaEnergy.com

Changes to renewable energy

On 14th December 2016, the Government published its renewable heat incentive consultation response, with changes coming into force in Spring 2017. Tariff for biomethane and biogas will be increased by 38% and 33%. New sustainability criteria will be introduced, requiring that 50% of all biogas must be generated by waste or residue sources. Hence the use of maize or grass silage will be limited.

Tariff bandings for biomass installations will be removed – all capacities will receive the same rate. Offgen say there is a 12 month queue of projects waiting for full or pre-accreditation. The secretary of State retains the power to close schemes under the Budget cap mechanism at short notice. The risk of digression remains (automatic cuts to tariffs when uptake exceeds certain limits).

Feed in tariff support mechanism scheduled to end in 2019.

Martin Wilmott is a partner at Hawsons

Martin Wilmott acts as lead engagement partner for a wide range of corporate and non-corporate clients in the Doncaster office, especially in the Legal and professional, agricultural, transport, property and construction, manufacturing, healthcare and hospitality sectors. For more information or advice on anything covered in this article please contact Martin on [email protected] or 01302 367 262.

Ask and you will receive… Maybe – Brexit and Transport

Ask and you will receive… Maybe – Brexit and Transport

Brexit and Transport

With the Prime Minister’s finger hovering over the Article 50 trigger, the Freight Transport Association (FTA) launched its Brexit Manifesto in February to outline its “key asks” from the negotiation process.

The main themes emerging from the manifesto are:

  • The need for barrier-free and “frictionless” access to EU market
  • The development of trade deals with other global partners that minimise red tape and border delays
  • Investment in world class infrastructure and transport links to seize global opportunities
  • Assessment and consultation with industry bodies over regulatory simplification
  • A domestic industrial policy that is supportive to the logistics sector including attractive levels of taxation and continued financial support to transition to a low carbon economy
  • The need to retain and attract talent into the sector

The full manifesto can be accessed via the FTA website.

Paul Wormald, Partner and Transport and Logistics specialist at Hawsons, had this to say: “The FTA has put forward a very demanding set of requests from the UK Government in this manifesto, garnered via feedback from its members. The logistics industry is key to an efficient, effective and growing economy, generating around £121bn Gross Value Added to the economy, and employs over 2.5 million people. A post-Brexit landscape that is not supportive of the sector is likely to harm the UK’s longer term economic health on several levels.”

Paul added: “The planned cut in government support for the rail freight sector is not a positive sign and it is hoped that there is no further disappointing news in the future. With the future operating environment for businesses in the sector being far from clear, the need for careful and flexible planning and monitoring of performance is paramount. Regular contact with professional advisors is incredibly important so that opportunities can be identified and grasped, and challenges dealt with.”

More from our transport and logistics experts

You can find all of our latest transport and logistics sector news and newsletters here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Paul Wormald is a partner at Hawsons, working in the Doncaster office. He worked previously with two national firms of Chartered Accountants prior to joining Hawsons in 2001. For more information or advice on anything covered in this article, please contact Paul on [email protected] or 01302 367 262.[/author_info]

Transport and Logistics 2017 Budget review and analysis

Transport and Logistics 2017 Budget review and analysis

The Chancellor Philip Hammond presented the last Spring Budget on Wednesday 8 March 2017. In his speech the Chancellor was keen to point out that he wanted the tax system to be fair, particularly in relation to the distinction between employed and self-employed individuals. In this article, we look at how the Chancellor’s Spring Budget impacts the transport and logistics sector.

In the Budget speech the Chancellor announced that he has requested a report to be delivered in the summer on the wider implications of different employment practices. Also, the Budget included changes to NICs and the Dividend Allowance.

In December and January the government issued a number of the clauses, in draft, of Finance Bill 2017 together with updates on consultations.

The Budget updates some of these previous announcements and also proposes further measures. Some of these changes apply from April 2017 and some take effect at a later date.

Our summary focuses on the issues likely to affect you and your business.

 

Main Budget tax proposals

Our summary concentrates on the tax measures which include:

  • increases to the Class 4 National Insurance rates – Update 15/03/17 – Chancellor withdraws plans to increase NI.
  • a reduction in the Dividend Allowance
  • changes to the timing of Making Tax Digital for smaller businesses.

Previously announced measures include:

  • increases to the personal allowance and basic rate band (a decreased band for Scottish residents)
  • the introduction of the Apprenticeship Levy
  • changes to corporation tax loss relief
  • the introduction of an additional inheritance tax residence nil rate band
  • changes for non-UK domiciled individuals.

Main Budget announcements (transport & logistics specific)

  • £690m fund for councils to improve local networks – £490m of which will be available by Autumn 2017
  • £220m fund to improve congestion pinch points (as announced in Autumn Statement 2016)
  • £270m fund to keep UK at the front of disruptive technology
  • 12 month freeze in VED rates for hauliers and the HGV road user levy from 1st April 2017
  • Increase in National Insurance Contributions (NICs) – Update 15/03/17 – Chancellor withdraws plans to increase NI.
  • £435m to support businesses affected by the increase to business rates from April 2017

 

Transport and Logistics 2017 Budget impact


A relatively quiet Budget for the sector?

It certainly seems so. The two biggest headlines from the Budget came in the form of the NIC rates, the first being that they were increasing; and the second being the Chancellor withdrawing the increase a week later. Class 2 NICs are currently paid on profits of £5,965 or more and Class 4 NICs at 9% are paid on profits between £8,060 and £43,000 (and at 2% on profits over £43,000). Class 2 NICs are to be abolished from 2018, but the main rate of Class 4 NICs was to increase by 1% to 10% in April 2018, and then by a further 1% in April 2019. Only the self-employed with profits above £16,250 would have been adversely affected by the new rates, However, as previously stated, these will now not be going ahead.

Improvement to local road networks

By Autumn 2017, £490m of a £690m fund will be available for councils to improve local road networks and reduce congestion.

Improvement to congestion pinch points

£220m has been allocated in order to improve congestion pinch points on national roads. £90m of this is to be allocated to the North, and more than £23m for the Midlands. This measure was previously announced in the 2016 Autumn Statement and full details of individual schemes funded by this initiative will be announced in due course. Yorkshire and the North East will benefit from a £30m upgrade of the A69 between Hexham and Newcastle as well as £14.8m invested in enhancing seven congested junctions, along with a further £18.2m on other “areas to be identified shortly”. In the Midlands, four schemes worth £9.9m will reduce queues at Old Stratford and Ogley Hay on the A5, junction 3 of the M42 and junction 27 on the M1.

Disruptive technology

The Chancellor also announced a £270m fund to keep UK at the front of disruptive technology, including driverless cars and helping the development, design and manufacture of batteries that will power the next generation of electric vehicles.

Paul Wormald, Partner and Transport specialist at Hawsons, had this to say: “A relatively quiet Budget for the sector with some of the investment programmes announced having been well trailed in the Autumn Statement. Programmes to reduce congestion both locally and nationally are welcomed, but whether these are enough to make a material improvement remains to be seen, particularly in light of reported plans to reduce rail freight subsidies and the knock-on effect that may have on HGV movements.”

Paul added: “The publishing of the review on modern Employment Practices in the summer is awaited with interest as this may lead to changes in how many in the sector who operate via Personal Service Companies are taxed. The planned reduction in the tax free dividend allowance from £5,000 to £2,000 from April 2018 will also affect these individuals.”

Paul Wormald is a partner at Hawsons, working in the Doncaster office. He worked previously with two national firms of Chartered Accountants prior to joining Hawsons in 2001. For more information or advice on anything covered in this article, please contact Paul on [email protected] or 01302 367 262.[/author_info]