Autumn Budget 2021: Employment tax

This proved to be another Budget where the Chancellor’s announcements did not include any significant changes to employment taxes. However, further details of the recently-announced health and social care levy were published, along with confirmation of an increase in national minimum/living wage rates from 1 April 2022. 

The tax information and impact notes also included further extensions to some of the previous exemptions introduced because of the coronavirus pandemic, as well as confirmation of the increase to van and fuel benefit charges from 6 April 2022. 

National living wage (NLW)

The national living wage (NLW) is the lowest hourly amount that can legally be paid to workers aged 23 or over (unless the worker is a first year apprentice). Lower national minimum wage (NMW) rates apply to employees under the age of 23 and apprentices. The NLW is set to increase to £9.50 per hour from the current NLW of £8.91 from 1 April 2022. This announcement sees the NLW increased to what is known as the ‘real living wage’ outside of London (£10.85 in London). 

The ‘real living wage’ is an amount calculated by the Living Wage Foundation (LWF) and reflects the amount workers and their families need to live. We are expecting an announcement from the LWF on 15 November 2021, which will indicate that there is a substantial gap between its recommendations and the increased rates announced by the government.

With the increased rates set to come into force in six months time, employers will now need to consider:

the financial impact of the increased rates (and associated employers’ national insurance contributions (NICs), pension contributions and the health and social care levy;

  • whether it is possible to maintain ‘real living wage’ accreditation given increased costs and the current economic climate;
  • employee communications regarding the NLW and/or ‘real living wage’;
  • pay differentials for skilled versus non skilled labour and whether pay bands/grades need to be revisited;
  • NMW/NLW compliance, as there is likely to be a limited pay buffer which can lead to technical breaches (relating to regulations governing time and attendance, uniform requirements, provision of living accommodation, deductions from pay etc);
  • union conversations/negotiations regarding pay rates/bands; and
  • reviewing salary sacrifice arrangements, given the potential increase of workers paid at or near the NLW/NMW.

While workers will welcome the news that the lowest paid workers pay is set to increase at a time when household spending on essentials is rising, there are a number of practical and commercial considerations for employers associated with these increases and ensuring compliance with this area of legislation. 

Health and social care levy

The introduction of a new health and social care levy from April 2022 provides for a temporary 1.25 per cent increase to national insurance contributions (NICs), replaced by a new 1.25 per cent levy from April 2023.

The levy will go directly to support the NHS and social care bodies across the UK.

From April 2022, NICs will increase by 1.25 per cent. This increase will affect:

  • employer Class 1 NICs – increasing from 13.8 per cent to 15.05 per cent;
  • employee Class 1 NICs – increasing from 12 per cent and 2 per cent to 13.25 per cent and 3.25 per cent;
  • class 1A NICs – increasing from 13.8 per cent to 15.05 per cent; and
  • class 1B NICs – increasing from 13.8 per cent to 15.05 per cent.

From April 2023, the temporary increase to NICs rates will be removed and a separate levy of 1.25 per cent will be payable by all those who pay Class 1, Class 1A and Class 1B instead. This will also be extended to employees who are over state pension age.

When the levy is introduced, this will also only be applicable to earnings above the respective NICs thresholds in future years.

Employers will be facing increased costs from April 2022 due to the introduction of this levy. It is therefore a good time to review existing working arrangements and benefit packages to understand whether they are fit for purpose in the hybrid working world. The introduction or relaunch of salary sacrifice or salary exchange arrangements may be beneficial to both employers and employees.

Power to make temporary modifications of taxation of employment income

New measures will allow HM Treasury, under ministerial direction, to make temporary modifications to employment tax legislation for a period of up to two tax years in the event of a disaster or emergency of national significance.

These new measures will enable the government to act more quickly and efficiently to support taxpayers during disasters or national emergencies. Possible examples of the measures could include exempting specific benefits-in-kind or specific expenses reimbursements, where appropriate, from the charge to income tax.

Whilst these measures may be beneficial to both the government and employers in the future, consideration should be given to any exemption changes, as well as the level of records that may need to be maintained to ensure continued compliance and mitigate potential issues arising due to HMRC scrutiny. 

Company vans and car and van fuel benefits 

In line with previous Budgets, and as expected, the van benefit charge and the car and van fuel benefit charges will be increased by the consumer price index (CPI) from 6 April 2022. 

As a result, for the 2022/23 tax year, the van benefit charge will increase to £3,600 (currently £3,500). The multiplier for the car fuel benefit will increase to £25,300 (currently £24,600) and the van fuel benefit charge will increase to £688 (currently £669).

The adoption of hybrid working, leading potentially to reduced commuting mileage together with the employer’s cost increase as a result of the health and social care levy, mean it may be beneficial for both employees and employers to reconsider the provision of a fuel benefit, as it might no longer be appropriate or cost effective in a hybrid working world. 

For more information please contact

Julie Moore Julie Moore

Employment Tax Director