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You always know when summer has really arrived and no it isn’t by what the weather is doing, it is that copious amounts of government consultation documents are published. 2016 is no exception with the Autumn Statement looming and a new Prime Minister, government crack downs on tax evasion is the main focus. Simplification is also high on their agenda and with the Office of Tax Simplification (OTS) conducting lots of research and providing recommendations throughout 2016 the following consultation documents didn’t come as a surprise to the accounting and payroll industry.
For many years it has been widely known HMRC and the Treasury were not keen on salary sacrifice, but with reward packages changing over the years, more and more employers are using the schemes to attract and retain employees. There will often be tax advantages and National Insurance savings for both the employee and the employer.
In June 2014 the government published a call for evidence document on employer remuneration strategies. The government were keen to understand current employer remuneration packages after a recommendation by the OTS. Business realised then that salary sacrifice was likely to come under the spotlight once more.
The current consultation is seeking views about limiting the range of benefits-in-kind that attract income tax and National Insurance contributions (NICs) advantages when they are provided as part of salary sacrifice arrangements. As announced in Budget 2016 the government is concerned about the growth of salary sacrifice schemes and is therefore considering limiting the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes. The purpose of this consultation is to explore potential impacts on employers and employees should the government decide to change the way the benefits code applies when a benefit-in-kind is provided in conjunction with a salary sacrifice or flexible benefit scheme. Employee contributions to employer-provided pensions, employer-provided pension advice, employer-supported childcare and provision of workplace nurseries and cycles and cyclist’s safety equipment provided under the cycle to work scheme will remain unaffected by this measure.
In a nutshell, unless a benefit offered by the employer falls into one of the allowable salary sacrifice criteria as above, then tax and Employer Class 1A National Insurance will be due, even if it is normally exempt from tax and Class 1A National Insurance, at the greater of:
This means that where the normal taxable value of the benefit in kind is higher than the amount of salary sacrificed, it would be subject to tax and Class 1A National Insurance in the normal way. This will end the plethora of reward packages using salary sacrifice for benefits such as company cars etc.
It has to be said that when reading the proposal, why HMRC doesn’t just say that only salary sacrifice schemes can be used for pension related areas, employer supported childcare and cycle to work schemes, rather than if they are the value of this, times that, it must be charged is a mystery; what happened to simplification?
PAYE Settlement Agreements
Next on the list is PAYE Settlement Agreements. These were introduced in the 1990s to reduce the administration burden on employers and HMRC. They allow employers to pay the tax and National Insurance on benefits provided to employees, rather than report benefits on a P11D or process via the payroll and the employee pay the charge.
This consultation is looking at simplifying the PAYE Settlement Agreement (PSA) process used for agreeing and reporting items in a PAYE Settlement Agreement. The government is not proposing to widen the scope of PSAs, which is a real shame as I have never understood the reasoning behind this; if the government is getting the right money and in fact it receives more than the employee would have paid, why do they care what is on a PSA? That would be true simplification surely?
However, this consultation sets out proposals to reform the PSA process, to:
This consultation is in response to the Office of Tax Simplification’s (OTS) second report on employee benefits and expenses published in January 2014.
Criteria has to be met for an employer to apply for a PSA and this also has to be applied for each year, every year. The government agrees applying each year is a burden. The treatment of National Insurance, especially on non-cash vouchers also causes burdens and confusion for employers. HMRC also checks all PSA calculations and as HMRC now uses risk assessment for compliance, this practice no longer fits with HMRC’s current practices.
The proposals are:
Termination Payment simplification
Next on the list is the draft legislation that will remove the National Insurance employer exemption on termination payments. The government is not increasing the £30,000 limit and is not proposing to charge employee National Insurance Contributions over this amount but, if viewed as a termination payment, anything over £30,000 the employer will be required to pay National Insurance.
In addition, the government has removed the exemption for anyone who does not have in their contract of employment a Pay In Lieu Of Notice (PILON) clause. Instead all PILONs will be treated as earnings and will be subject to tax and employer and employee National Insurance.
Where payments might be for example irregular, the draft legislation proposes to base the earnings on a 12-week period. This is in line with other legislation e.g. holiday pay and overtime/commission etc.
New ultra-low emission vehicle bands on company cars
HM Treasury has published a consultation to seek views on the design of new ultra-low emission vehicle bands in the company car tax system. The consultation seeks to explore how best to incentivise the cleanest cars into the next decade, a period during which rapid innovation will deliver significant changes in the way motor vehicles are powered. Company car tax rates and bands, including for ultra-low emission cars (ULEVs) are already legislated for until 2019- 20. This consultation seeks views on the design of bands for ULEVs from 2020-21 onwards, with particular emphasis on how to incentivise the uptake and development of step-change technologies over incremental improvements in existing technologies.
Alignment of dates for ‘making good’ on benefits-in-kind
This consultation is looking at proposing to align the ‘making good’ rules for benefits in kind (BIKs) with those where the employer accounts for the BiK in real time through PAYE. The Office of Tax Simplification, employers and representative bodies have made it clear to the government there are problems with the existing rules for employees ‘making good’ the value of the benefits-in-kind they receive from their employers. They have highlighted that for some benefits-in-kind there are a number of different dates set out in legislation and in HMRC guidance. Additionally, for some benefits-in-kind they have highlighted the practical difficulties of complying with the dates in legislation, which has to a large part led to the inconsistencies with HMRC guidance. The recent introduction of new dates for making good on benefits-in-kind where the employer accounts for the benefit in kind in real time through PAYE (payrolling) has highlighted the lack of consistency and potential for confusion. The government has now issued a consultation document exploring the scope for aligning the making good rules for benefits-in-kind with those where the employer accounts for the benefit-in-kind in real time through PAYE. BIKs such as beneficial loans etc. are being highlighted in the examples.
The above are just some of the key consultation documents, however digital services and simplification measures are being consulted on all the time via forums. Other government departments are also looking at new legislation e.g. apprenticeship levy.
Armstrong Watson are responding to the proposals to ensure we stay one step ahead to help our clients.
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