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Autumn Budget 2021: How does it Affect Charities?

Photo of Kevin Russell Kevin Russell
3 min

The Government’s Autumn Budget Statement was given on 27 October. What was in there that directly affects charities? To be honest, not much. But further tax announcements are expected in late November or early December.

In the Budget itself, there are two matters that warrant attention, both of which will add to cost pressures. Charities’ income is already under pressure but when one adds in inflation (currently running at around 3%, with further increases forecast) and with the threat of increases in interest rates, careful budgeting over the coming years will be necessary, especially for charities that employ staff.

National Living and National Minimum Wage (NLW and NMW)

In line with the government’s ambition for the NLW to reach two-thirds of median earnings for workers aged 21 and over by 2024, NLW and NMW hourly rates will benefit from above inflation increases from 1 April 2022:

  • For individuals 23 and over, the NLW will increase by 6.6% from £8.91 to £9.50
  • NMW rates are also increased as follows:
    • for 21 to 22 year olds by 9.8% from £8.36 to £9.18
    • for 18 to 20 year olds by 4.1% from £6.56 to £6.83 per hour
    • for 16 to 17 year olds by 4.1% from £4.62 to £4.81 per hour
    • for apprentices by 11.9% from £4.30 to £4.81 per hour

The accommodation offset rate increases by 4.1% from £8.36 to £8.70 per hour.

The new Health and Social Care Levy (HSCL)

From 6 April 2022, all employers, employees and the self-employed face a 1.25% increase in tax as a result of the HSCL.

  • Employees and the self-employed will pay the levy on all earnings or profits over £9,568
  • Employers will pay the levy on employees’ earnings over £8,840

The Government says that most employers will not suffer the cost of the Levy because the existing Employment Allowance (which provides eligible employers with relief on the first £4,000 of national insurance contributions) will also be available to cover the cost of the Levy. However, some quick calculations indicate that many employers will have already exhausted the £4,000 allowance before the Levy is taken into account. An employer with a single employee earning £37,860 or with two employees each earning £23,333 will not receive any support against the Levy from Employment Allowance.

The following Table gives some idea of the scale of the problem:

Employees and earnings

HSCL – employee(s)

HSCL - Employer

Employment Allowance

Employer – net cost

 

 

 

 

 

1 at £17,290 [1]

£96.52

£105.63

£(105.63)

Nil

3 at £17,290

£289.56

£316.89

£(316.89)

Nil

 

 

 

 

 

1 at £25,000

£192.90

£202.00

£(202.00)

Nil

3 at £25,000

£578.70

£606.00

nil

£606.00

 

 

 

 

 

1 at £48,000

£480.40

£489.50

nil

£489.50

 

 

 

 

 

From the above, it can be seen that employee numbers and their respective pay levels are important in determining the employer cost of the Levy. However, employees will suffer the cost in all cases. This in turn may lead to pressure to increase staff pay. Should this be the case, restoration of net pay would involve disproportionate pay increases to take account of the income tax, national insurance and pension contributions that will become payable on that increase (‘grossing up’).

So, the Health and Social Care Levy could lead to surprisingly large increases in the Church’s budget!

Our blog on this topic provides further details and example calculations.

 

[1] That is the National Living Wage rate from April 2022 for a 23+ year old working a 35-hour week. Calculations based on 2020/21 Primary and Secondary National Insurance Thresholds.

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Written by

Kevin Russell

Kevin is one of Stewardship’s leading team of technical experts with over 25 years of experience of helping churches and Christian charities maximise their potential. His expertise and knowledge is sought not only by charitable organisations but by Government, the Charity Commission and HMRC, helping to solve complex tax and charity law problems.

Prior to working for Stewardship, Kevin had a wide range of business, charity and teaching experience and is a qualified chartered accountant, and a chartered tax advisor. At PwC he was a Senior Tax Consultant assisting medium and large businesses in all aspects of their tax affairs. Also a lecturer in the Business School at Middlesex University and Principal of his own Chartered Accountancy practice.

Kevin is Vice Chair of the Charity Tax Group and Chair of CTG’s Gift Aid & Giving Technical Group. He represents the Christian church on HMRC’s Charity Tax Forum and advocate for the sector to Government, the Charity Commission and HMRC.

Currently a trustee of the UK arm of an international charity that inspires people to discover Jesus for themselves. Past roles include church deacon, trustee and auditor and he has helped set up two church plants.

Kevin and his wife Carol have 3 adult children and one grandchild.  They attend Grace Church, Highlands in North London.

Causes close to Kevin and Carol’s hearts are those working directly with the homeless, with drug addicts, and women in prostitution. Organisations working in evangelism amongst young people, in family life and demonstrating Christian love in action in the public sphere.

 

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