Matt Ellis, global employer services partner at Deloitte, comments:

“Overall, there was little good news for employers in the Chancellor's Pre-Budget Report (PBR).  The general costs of employment will rise in 2011 with the half percent increase in National Insurance Contributions (NIC). 

This will cost employers an additional £2 billion.  For many employers that's not the worst of it - the increase in the tax rate to 45% for those earning £150,000 or more will cause other problems, such as:

• the war for talent will get harder with many of the very best people possibly opting for residence in lower tax jurisdictions, such as the US, which has a top rate of income tax of 35% rather than the UK's high tax system at 45%;
• in many cases employers themselves will have to bear this additional cost where they offer ‘grossed up’ packages, for example, instances where the employer pays the tax bill for expat employees.

It is also likely though that higher taxes and NIC costs will lead to a demand for employers to introduce tax mitigation schemes as these become even more attractive in a higher tax regime.  Of particular interest, with share prices currently low, may be schemes that offer shares to employees now which will ultimately suffer an 18% capital gains tax charge on sale rather than a 45% income tax and 1.5% NIC charge.

Other planning might involve advancing income into years before 2011 to benefit from the 40% rate.

On a slightly brighter note, employers escaped a feared clampdown on ‘salary sacrifice’ arrangements, particularly in the areas of travel expenses and canteens.  These planning structures therefore live on – at least for now.”

Ends

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP, which is among the country's leading professional services firms.  Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein, whose member firms are legally separate and independent entities. 

Please see www.deloitte.co.uk\about for a detailed description of the legal structure of DTT and its member firms.  The information contained in this press release is correct at the time of going to press.