Spring Budget 2017: Employment Tax
We have seen big changes to employment tax over the last couple of years, with the introduction of the Apprenticeship Levy, the abolition of dispensations, the removal of tax advantages of some salary sacrifice schemes, and fundamental changes to the taxation of termination payments. So it was not surprising that this Budget was light on measures affecting employers. However, we can expect more changes in the coming year, with the publication of three consultations/calls for evidence in relation to employee benefits and expenses. Businesses should therefore make the most of this period of relative quiet to ensure they understand the previously announced changes coming into force in April 2017 and April 2018.
HMRC will publish guidelines in spring 2017 for employers who make payments to their employees for image rights.
It was established back in 2000 that an employee could receive separate payments for the use of their image, in addition to earnings from their employment. Where image rights are in point, these are often assigned to a company, which may be offshore. HMRC is concerned that arrangements concerning image rights might be leading to an under collection of PAYE and NICs on payments that should be classified as earnings, and their new guidelines will tackle this. Given the Government’s crackdown on perceived anti-avoidance, it is not surprising that HMRC is looking closely at this scheme.
Alignment of dates for making good on benefits in kind
Finance Bill 2017 will include legislation to align the dates for making good on benefits in kind. From 2017/18 onwards, the date for an employee to make a payment in return for a benefit in kind (to reduce the taxable value of the benefit) will be 6 July following the end of the tax year.
We are pleased that the Government has listened to the comments made in consultation and has settled on a date that ties in with when taxable benefits are due to be reported on Forms P11D. This will keep things simple for employers and employees alike.
Off-payroll working in the public sector
From April 2017, responsibility for operating the off-payroll working rules, and deducting any tax and NICs due, will be with the public sector body, agency, or other third party, that pays the individual’s personal service company. It will be optional for the agency or public sector body to take account of the worker’s expenses when calculating the tax due. This change would put these workers in the same position as other employees, whose employers can choose whether or not to reimburse the expenses they incur.
This change will no doubt be welcomed by those workers who incur significant expenses on behalf of the public body. Although widely predicted, there is still no indication that these rules will be extended to businesses outside of the public sector.
HM Revenue & Customs have now released their “tool” to assist relevant bodies to make the decision over whether the payments their make should have tax deducted at source. The tool can be accessed by clicking here.
Taxation of benefits in kind, accommodation benefits and employee expenses
As announced in the Autumn Statement 2016, on 20 March 2017 the Government will publish:
- a call for evidence on exemptions and valuation methodologies for the tax treatment of benefits in kind
- a consultation paper with proposals to bring the tax treatment of employer-provided living accommodation up to date
- a call for evidence to better understand the use of the income tax relief for employees’ expenses, including those that are not reimbursed by their employer.
The general rule for valuing benefits, in the absence of special rules in place for company cars, employer loans and accommodation, is to use the cost to the employer of providing the benefit. This rule works very well for employees where benefits with a high market value can be provided at a low cost to the employer – for example, an energy company providing free gas to employees, or an independent school providing free schooling to children of the faculty. We may well expect the value of taxable benefits in these circumstances to increase.
HMRC is actively monitoring compliance with the National Insurance Employment Allowance, following reports of some businesses using schemes to avoid paying the correct amount of NICs. The Government will consider taking further action in the event that this avoidance continues.
The Employment Allowance is constantly causing headaches for government as the regime is susceptible to abuse. This is the second attempt to eliminate scope for abuse, but with a relief costing the treasury nearly £2bn per year, it might now be time to think again.
Below is a summary of the measures previously announced:
The tax and employer’s National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except in respect of arrangements relating to pensions (including advice), childcare, Cycle to Work scheme and ultra-low emission cars. Arrangements in place before April 2017 will be protected until April 2018 and arrangements for cars, accommodation and school fees will be protected until April 2021.
From April 2018, all payments in lieu of notice (whether contractual or not) will be subject to tax and NICs in the usual way. In addition, foreign service relief, for employees who have spent time working outside the UK, will be removed and termination payments over £30,000 that are subject to income tax will also be subject to employers’ NICs. The first £30,000 of a termination payment will remain exempt from both income tax and National Insurance Contributions.