Budget 2018 - how will it impact your employees pay and personal allowance tax?

On 29 October 2018 the chancellor Phillip Hammond announced that the National Living Wage (NLW) will rise again from April 2019, handing a full-time worker a £690 annual pay increase. 

What does this mean in terms of pay increases I have to give my employees?

The NLW, which applies to workers aged 25 and over, will increase by 4.9% - from £7.83 to £8.21 from April 2019. The Low Pay Commission (LPC) estimate that this will benefit around 2.4 million workers. The NLW will increase at a faster rate than the rising cost of living.

The government has also accepted all of the LPC’s recommendations for the other National Minimum Wage rates to apply from April 2019, which include:

  • Increasing the rate for 21 to 24-year-olds by 4.3% from £7.38 to £7.70 per hour
  • Increasing the rate for 18 to 20-year-olds by 4.2% from £5.90 to £6.15 per hour
  • Increasing the rate for 16 to 17-year-olds by 3.6% from £4.20 to £4.35 per hour
  • Increasing the rate for apprentices by 5.4% from £3.70 to £3.90 per hour

What are the tax implications for employees in this budget in terms of their earnings?

The personal allowance threshold - the rate at which people start paying income tax at 20% - will rise from £11,850 to £12,500 in April - a year earlier than planned.

The higher rate income tax threshold - the point at which people start paying tax at 40% - will rise from £46,350 to £50,000 in April.

Five months for businesses to plan and prepare

As the increases in minimum wages take effect from April 2019, businesses have in effect five months to plan, prepare and budget for the increase in wages that they will need to give to their staff earning at the minimum wage level.

On current forecasts, the NLW could rise to £8.62 per hour by 2020.

Employers are advised to ensure that they make note of these increases and when they come into effect to avoid the potential costly and timely error of underpaying staff the correct minimum pay.