Employment Taxes
Key points:
- PILON simplification and NI on termination payments
The government has consulted at length on these two areas; firstly on PILONs (Pay In Lieu Of Notice). There are currently different rules as to how to treat a payment when the employer breaches the notice period in the contract. For example, if it is included that a PILON will be paid in the contract, or it has been custom and practice to do so, by the employer, then the payment is treated as earnings, subject to tax and NICs. However, if not, then it can be paid free of tax and NICs. Employers could get confused over these rules so to make it easier any PILON will be treated as earnings from 2018 so subject to Income Tax and NICs.
Secondly, termination payments e.g. payment for loss of office, are not subject to Class 1 NICs. From April 2018 the threshold before which Income Tax is due will remain at £30,000, but anything over this amount will also be subject to Employers Class 1 National Insurance.
PAYE Settlement Agreements (PSA)
Key points:
- Not surprising, but welcomed news is that the Government has confirmed it will simplify the PAYE Settlement Agreement (PSA) process, as outlined in the September 16 consultation document.
The Government consulted on whether or not the PSA process could be made easier. This didn’t include changing the PSA legislation, only the process by which employers apply for a PSA.
So what does this mean? From the scope of the government consultation we expect to see:
- Removal of pre-agreement of items included in the PSA
- Online submission
- Removal of the criteria of “minor”
- Alignment of Class 1B NI payments with the Class 1A payment dates
Making good on benefits in kind
Key points:
- Supported by Armstrong Watson, employees who want to make good on benefits in kind will need to make the payment by 6 July each year.
The government will include, in the Finance Bill 2017, a measure, previously consulted on, that will ensure an employee who wants to ‘make good’ on a non-payrolled benefit in kind will have to make the payment to their employer by 6 July in the following tax year. ‘Making good’ is where the employee makes a payment in return for the benefit in kind they receive; this reduces its taxable value. This will have effect from April 2017.
Salary sacrifice
Key points:
- Supported by Armstrong Watson taxable benefits included in salary sacrifice schemes will be subject to the same tax rules, as if they were not sacrificed
Whilst the area of salary sacrifice has always raised interesting debates over the years, HMRC hasn’t, until now, aligned the benefit in kind rules with those “benefits” sacrificed. Taxable benefits still need to be reported on a P11D and Class 1A paid by the employer where appropriate, but the employee often benefits from NI savings thus potentially reducing their overall liability.
This is about to change from next year albeit the government recognises existing schemes will need to transition. Any arrangements in place before April 2017 will be protected until April 2018, with cars, accommodation and school fees protected until April 2021. All salary sacrificed items will need to be calculated and tax / NI paid on what the benefit value is, as if it hadn’t been sacrificed. There are some exceptions:
- Employer supported childcare voucher schemes
- Cycle to work schemes
- Pension contributions
- Low emission cars
National Living Wage
Key points:
- NLW rises to £7.50 from April 2017
The Chancellor used the rise to £7.50 for the National Living Wage to demonstrate how the Conservative Government does give pay rises to low income, working households. Whilst obviously good for employees who earn the NLW, further pressure may be put on businesses that pay this.
National Insurance thresholds aligned
Key points:
- Simplification at its best for NI threshold alignment
The Office of Tax Simplification (OTS), as part of their many reports of late, have recommended a very quick and easy simplification measure. The government have accepted this recommendation and will from April 2017 align the employer and employee NI thresholds. This will mean, from April 2017, both employees and employers will start paying NI on weekly earnings above £157.00.
Just a point to note, as expected, Class 2 NI will be abolished from 2018 simplifying NI for the self-employed.
Employee Shareholder Status (ESS)
ESS was introduced in 2013 to aid smaller businesses and to create a flexible workforce; basically, employees gave up certain rights in return for tax advantages.
Key points:
- In today’s Autumn Statement it was announced that as ESS was not being used as intended it will be abolished.
The Income Tax and Capital Gains Tax reliefs will be removed for agreements entered into on or after 1 December 2016. Agreements entered into before then, or already entered into, remain unaffected. Any shares acquired at an undervalue on or after 1 December 2016 will be taxed to Income Tax as earnings, and gains and losses computed in the normal way upon disposal.
These changes are being made to tax law with a view to abolishing the entire structure, as soon as possible, once employment law can be amended.
Disguised Remuneration
Key points:
- HMRC continue to attack use of disguised remuneration schemes.
The Budget 2016 announced changes to tackle the use of disguised remuneration schemes, by employers and employees, in particular the loan charge due to come into being in 2019. The government will now extend the scope of these changes to tackle the use of disguised remuneration avoidance schemes by the self-employed. This will ensure that self-employed users of these schemes pay their fair share of tax and National Insurance.
Also, the government will take steps to make it less attractive for employers to use disguised remuneration avoidance schemes by denying tax relief for an employer’s contributions to such schemes unless tax and National Insurance are paid within a specified period.
