March 10th, 2020 / Insight posted in Articles

Budget 2020: Employment Tax

Important measures were set out to support small to medium-sized employers as much as possible during the Coronavirus epidemic, with the changes to the SSP rules being simple but potentially effective. Smaller employers will also benefit from changes to the Employment Allowance, and larger businesses with workers within the IR35 rules will be disappointed that the off-payroll working regime will be implemented as planned.

 

SSP and Coronavirus

The government has announced a series of measures to help support employers with fewer than 250 employees (as at 28 February 2020) during the current Coronavirus outbreak. Eligible employers will be able to reclaim expenditure for any employee who has claimed SSP as a result of the Coronovirus; this refund will be limited to two weeks per employee and will include SSP paid due to having the virus, and due to having to self-isolate because of the virus. The repayment mechanism does not currently exist but will be set up as soon as possible to assist employers in receiving the refunds due.

Moore Kingston Smith comment

It is very welcome news that those required to self-isolate will be eligible for SSP and that their employers will not be out of pocket for paying them. Associated relaxations related to GP fit notes will also be very helpful at a time when surgeries may be overly busy.

 

Increasing National Insurance thresholds

Many employees will get a boost in their take-home pay from April 2020, as the primary threshold for National Insurance Contributions will increase by £17 per week. For those able to take full advantage of this, it will result in a saving of over £100 per year. A corresponding increase will also apply to Class 4 National Insurance Contributions for the self-employed.

Moore Kingston Smith comment

This is the first step in the government’s plan to increase the National Insurance threshold to match the personal allowance for income tax, so helping the lower paid increase their take-home pay without costing their employer.

 

National Insurance and increased Employment Allowance

All employers eligible for the Employment Allowance – which is deducted from the employers’ NIC bill – will see the allowance increase from £3,000 to £4,000 with effect from April 2020.

Moore Kingston Smith comment

This is good news for many employers but its impact will be limited with the scaling-back of the Employment Allowance in April this year to those employers with an employer’s National Insurance liability of less than £100,000 in the previous tax year.

 

Flat rate tax deduction for home working

This is a relief that has not registered with many employees previously, but recent changes in working patterns have been exacerbated by the Coronavirus crisis and many more workers are being encouraged to work from home. This inevitably raises questions about additional household costs. There is an existing flat rate deduction available for employees of £4 per week, but the Chancellor has announced an increase to £6 per week from April 2020 which can be claimed without providing evidence of household bills.

Moore Kingston Smith comment

This is a welcome increase, particularly in view of the prospect of large numbers of the working population having to self-isolate or being forced to work from home over coming months.

 

National Insurance holiday for employers of veterans in first year of civilian employment

This measure will exempt employers from National Insurance Contributions on salary paid up to the Upper Earnings Limit (currently £962/week) to ex-service personnel. It will be available from April 2021, and a consultation on the detailed design of this relief will take place in due course.

Moore Kingston Smith comment

This measure will support businesses to hire those who have previously served their country, and should help them to find employment outside the armed services.

 

Company vehicles

The provision of a company car to an employee is a taxable benefit, which has historically always been calculated by reference to the CO2 emission of that car. A new set of rates will apply from 2020/21, and these will also take into account the electric range of low-emission cars, and when the car was registered (with cars first registered from 6 April 2020 having 2% lower rates). Rates are set to increase by 1% for each of 2021/22 and 2022/23 before being frozen until 2024/25.

The government has also announced that zero-emission vans will attract a nil rate of tax where they are within the van benefit charge. Fuel benefit and van benefit charges will increase in line with CPI from April 2020.

Moore Kingston Smith comment

The changes to the company car benefit rates have been introduced to counter the effect of the new emissions testing regime. Pure electric vehicles will have a new zero percentage rate, which will no doubt encourage more employees to take this option if offered. Vans are to be treated in the same way which is a welcome if not unexpected change to the rules.

 

Tax treatment of welfare counselling provided by employers

The government is extending the tax exemption available where employees provide counselling services. This exemption will also now include related medical treatment such as cognitive behavioural therapy. Welfare counselling is already exempt from being a taxable benefit, but related medical treatment has until now been taxable. The changes are effective from April 2020.

Moore Kingston Smith comment

The introduction of medical treatment will be a welcome addition to the services employees can use to improve their mental wellbeing.

 

Review of changes to the off-payroll working rules (commonly known as IR35)

The planned new off-payroll working rules for the private sector will be effective from 6 April 2020. These rules will apply where the worker is providing his or her services in the same way as an employee would, albeit through a personal services company; in such cases, the person paying for the services must account for PAYE and National Insurance Contributions. The government has recently concluded a review of the proposed rules, and is to make a number of changes with a view to ensuring their implementation goes as smoothly as possible. The government has now confirmed:

  • the rules only apply to services provided after 6 April 2020
  • HMRC will not charge penalties for inaccuracies during 2020/21, unless there is deliberate failure to comply
  • end-users of services will be legally obliged to respond to information requests about their size from agencies and workers
  • HMRC will not use information submitted as a result of the new rules to launch investigations into personal services companies for tax years prior to 2020/21, provided there’s no reason to suspect fraud or criminal behaviour

Moore Kingston Smith comment

The off-payroll working rules remain unpopular with businesses and it is very disappointing that the Chancellor has missed his last opportunity to defer these rules at a time when the economy is at its most fragile.

 

Tackling abuse in the Construction Industry Scheme (CIS)

HMRC is aware that incorrect or fraudulent claims are being made under the Construction Industry Scheme by some subcontractors. Under the rules as they stand, where a subcontractor has been subject to a 20% deduction on their invoices, they can claim a credit against their PAYE remittances. The measures announced today will allow HMRC to amend subcontractors’ monthly returns – reversing or limiting any credit claimed – where they cannot provide evidence of tax withheld.

Moore Kingston Smith comment

CIS is a complex system, and it can be abused, leading to an uneven playing field for subcontractors who comply with the regulations. This measure more than ever places a requirement on subcontractors to obtain and retain deduction statements from the contractors by whom they are engaged.