UK Budget 2015: Employment tax changes UK Budget 2015: Employment tax changes

UK Budget 2015: Employment tax changes
31 May 2015

Much of what was included on the day of the Budget 2015 relating to employment tax day was connected to prior announcements. You might recall December 2014.

The UK government published over 250 pages of draft Finance Bill 2015 legislation for technical consultation, trying to meet its commitment to publish the majority of the Finance Bill clauses in draft at least three months ahead of the introduction.

This year led to some surprise changes at the last minute after the Chancellor’s announcement. On 24 March the proposed changes to trivial benefits from April 2015 were pulled from the Finance Bill along with a new tax exemption for travel expenses of members of local authorities announced originally in July 2014. We will have to keep a close eye on the detail in the post-election budget, but for employers there are a number of changes to be aware of:

• Abolition of £8,500 threshold, exemption for reimbursed expenses and payrolling benefits-in-kind (BIK) as previously announced from April 2016
• Travel and subsistence consultation (not yet published) on restricting tax relief for workers engaged through an employment intermediary from April 2016
• National insurance changes set as nil for under 21’s from April 2015, with further changes for under 25s from April 2016 • Intermediaries to report to HMRC every three months non-PAYE workers, supplied to clients from 6 April 2015
• Sporting testimonials - existing practice retained until at least April 2016
• Company car tax, fuel benefit and van rates to change from April 2015

P11Ds/P9Ds

From April 2016, the government will remove the £8,500 threshold under which employees will not pay income tax on certain BIK (P11D required for all employers) and will replace it with new exemptions for carers and ministers of religion.

Removing the £8,500 limit will mean lower paid employees will be taxed on some benefits that they currently do not pay tax on. We will have to wait to see if the government are also including unpaid volunteer expenses in any exemption.

Dispensations

From 6 April 2016 the government will exempt from income tax expense payments and benefit-in-kind (BIK) provided to employees where they would have been eligible for a deduction. Therefore, there will be no need for a dispensation to be granted.

The exemption will also allow employees to be paid a ‘scale rate’ in respect of qualifying expenses, rather than being reimbursed the expense they have actually incurred. Providing this is agreed in advance, it can be at the rate set by HMRC or one that the employer specifically agrees.

Draft legislation was published for consultation in December 2014 and it was confirmed in the March 2015 Budget that legislation to implement this measure will be introduced in a future Finance Bill. 

Preventing salary sacrifice

The exemption will not apply to deductible expenses or BIKs that are provided as part of a salary sacrifice arrangement, which is made before or after the employment began. This means salary sacrifice and flexible arrangements will need to be reviewed before 6 April 2016.

Voluntary payrolling

From 6 April 2016 employers will be able to payroll car, car fuel, medical insurance and subscriptions such as gym membership. This will be optional for employers. They will be able to continue reporting the benefits on the form P11D after the end of the tax year as normal if they wish. 

Travel and subsistence review

The government announced they are still working on a review of the rules for tax relief on travel and subsistence payments. Though they had hoped to announce something in the budget, this is on hold until the additional work is completed. A full public consultation will occur in time.

National insurance contributions (NIC) Employers’ NIC will be set at nil from 6 April 2015 for all workers aged under 21 who earn less than £42,385 a year or £815 per week. The government will abolish employer NICs up to the upper earnings limit for apprentices aged 25 and under. This will come into effect from April 2016

Company car tax

The government has confirmed that from 6 April 2015, the graduated table of company car tax bands will provide for a five per cent band for cars with emissions of 0-50g CO2 per km, a nine per cent band for cars with emissions of 51-75g CO2 per km, a 13 per cent band for other low emissions cars (76g-94g CO2 per km) with a two per cent increase for each rise in emissions of 5g CO2 per km from 95g CO2 to a new maximum of 37 per cent.

You can calculate how these new rates affect you by using HMRC’s calculator.The rates for zero emission vehicles and some of the lower CO2 vehicles are outlined below:
• Cars with emissions in excess of 75g/km (grams of carbon dioxide per kilometre) will see successive two per cent rises in the list price percentage in each of 2017/18 and 2018/19, with a maximum cap of 37 per cent remaining in place.
• In 2017-18 there will be a four percentage point differential between the 0-50 and 51-75 gCO2/km bands and between the 51-75 and 76-94 gCO2/km bands. In 2018- 19, the differential will reduce to three percentage points.

Van benefit charge

From 2016/17 the charge will increase by reference to the Retail Prices Index (RPI) figure, as at September 2015. As previously announced, the charge for the 2015/16 tax year will be £3,150 (2014/2015 is £3,090).

The current van benefit charge of £nil for vans, which do not emit CO2 (zero emission vans), will change to:e
• 20 per cent of the value of the van benefit charge for vans which emit CO2 in 2015-16
• 40 per cent in 2016-17
• 60 per cent in 2017-18
• 80 per cent in 2018-19
• 90 per cent in 2019-20.
From 2020-21, there will be a single van benefit charge applying to all vans. This change will impact those currently with vans and could result in some changes in practices.

Fuel benefit charge

From 6 April 2016, the multiplier will continue to increase by reference to RPI for both company cars and vans. For cars in the 2015/16 tax year it is £22,100 (2014/15: £21,700), but for vans it will be £594 (2014/15 is £581).

Intermediaries reporting

From 6 April 2015, intermediaries must return details of all workers they place with clients where they do not operate Pay As You Earn (PAYE) on the workers’ payments.

The returns must be sent to HMRC once every three months, with the first is due on 5 August. In the report the intermediary will be required to provide specific personal details about themselves and those workers who have been paid without PAYE, in the required format.

The definition of an employment intermediary is wider than many might have thought including not just employment agencies but also others who might provide workers to an end client. Further details can be found on www.gov.uk.

Employment intermediaries - restriction of relief for travel and subsistence 

The government will consult on restricting travel and subsistence reliefs for workers engaged through an employment intermediary and under the supervision, direction and control of the end-user. This measure will impact those with over-arching contracts of employment (following the Reed Employment Plc & Ors v HMRC [2014] UKUT 0160 (TCC) employment case), as well as other working arrangements involving the use of employment intermediaries, such as Personal Service Companies and Umbrella Companies. 

A consultation is likely to happen over the summer with changes taking effect from 6 April 2016. 

Employee incentives

This change will apply to certain employees holding shares as the capital gains tax entrepreneurs’ relief (ER) qualification rules are amended for disposals on or after 18 March 2015. It is targeted at structures under which executives would be directors of and each hold 5 per cent shareholdings in, a specially-formed company which in turn held growth shares representing 10 per cent of the ordinary share capital of a trading company (taking advantage of the definition of joint venture in the ER legislation).

Review of employment status

In the budget the government stated that it welcomed the report from the Office of Tax Simplification on employment status issued on 3 March and that it would respond to the recommendations set out in the report in the next parliament.

 By Susan Ball

Susan Ball is head of the employment advisory
team at Crowe Clark Whitehill, a leading
national audit, tax and advisory firm.

Much of what was included on the day of the Budget 2015 relating to employment tax day was connected to prior announcements. You might recall December 2014.

The UK government published over 250 pages of draft Finance Bill 2015 legislation for technical consultation, trying to meet its commitment to publish the majority of the Finance Bill clauses in draft at least three months ahead of the introduction.

This year led to some surprise changes at the last minute after the Chancellor’s announcement. On 24 March the proposed changes to trivial benefits from April 2015 were pulled from the Finance Bill along with a new tax exemption for travel expenses of members of local authorities announced originally in July 2014. We will have to keep a close eye on the detail in the post-election budget, but for employers there are a number of changes to be aware of:

• Abolition of £8,500 threshold, exemption for reimbursed expenses and payrolling benefits-in-kind (BIK) as previously announced from April 2016
• Travel and subsistence consultation (not yet published) on restricting tax relief for workers engaged through an employment intermediary from April 2016
• National insurance changes set as nil for under 21’s from April 2015, with further changes for under 25s from April 2016 • Intermediaries to report to HMRC every three months non-PAYE workers, supplied to clients from 6 April 2015
• Sporting testimonials - existing practice retained until at least April 2016
• Company car tax, fuel benefit and van rates to change from April 2015

P11Ds/P9Ds

From April 2016, the government will remove the £8,500 threshold under which employees will not pay income tax on certain BIK (P11D required for all employers) and will replace it with new exemptions for carers and ministers of religion.

Removing the £8,500 limit will mean lower paid employees will be taxed on some benefits that they currently do not pay tax on. We will have to wait to see if the government are also including unpaid volunteer expenses in any exemption.

Dispensations

From 6 April 2016 the government will exempt from income tax expense payments and benefit-in-kind (BIK) provided to employees where they would have been eligible for a deduction. Therefore, there will be no need for a dispensation to be granted.

The exemption will also allow employees to be paid a ‘scale rate’ in respect of qualifying expenses, rather than being reimbursed the expense they have actually incurred. Providing this is agreed in advance, it can be at the rate set by HMRC or one that the employer specifically agrees.

Draft legislation was published for consultation in December 2014 and it was confirmed in the March 2015 Budget that legislation to implement this measure will be introduced in a future Finance Bill. 

Preventing salary sacrifice

The exemption will not apply to deductible expenses or BIKs that are provided as part of a salary sacrifice arrangement, which is made before or after the employment began. This means salary sacrifice and flexible arrangements will need to be reviewed before 6 April 2016.

Voluntary payrolling

From 6 April 2016 employers will be able to payroll car, car fuel, medical insurance and subscriptions such as gym membership. This will be optional for employers. They will be able to continue reporting the benefits on the form P11D after the end of the tax year as normal if they wish. 

Travel and subsistence review

The government announced they are still working on a review of the rules for tax relief on travel and subsistence payments. Though they had hoped to announce something in the budget, this is on hold until the additional work is completed. A full public consultation will occur in time.

National insurance contributions (NIC) Employers’ NIC will be set at nil from 6 April 2015 for all workers aged under 21 who earn less than £42,385 a year or £815 per week. The government will abolish employer NICs up to the upper earnings limit for apprentices aged 25 and under. This will come into effect from April 2016

Company car tax

The government has confirmed that from 6 April 2015, the graduated table of company car tax bands will provide for a five per cent band for cars with emissions of 0-50g CO2 per km, a nine per cent band for cars with emissions of 51-75g CO2 per km, a 13 per cent band for other low emissions cars (76g-94g CO2 per km) with a two per cent increase for each rise in emissions of 5g CO2 per km from 95g CO2 to a new maximum of 37 per cent.

You can calculate how these new rates affect you by using HMRC’s calculator.The rates for zero emission vehicles and some of the lower CO2 vehicles are outlined below:
• Cars with emissions in excess of 75g/km (grams of carbon dioxide per kilometre) will see successive two per cent rises in the list price percentage in each of 2017/18 and 2018/19, with a maximum cap of 37 per cent remaining in place.
• In 2017-18 there will be a four percentage point differential between the 0-50 and 51-75 gCO2/km bands and between the 51-75 and 76-94 gCO2/km bands. In 2018- 19, the differential will reduce to three percentage points.

Van benefit charge

From 2016/17 the charge will increase by reference to the Retail Prices Index (RPI) figure, as at September 2015. As previously announced, the charge for the 2015/16 tax year will be £3,150 (2014/2015 is £3,090).

The current van benefit charge of £nil for vans, which do not emit CO2 (zero emission vans), will change to:e
• 20 per cent of the value of the van benefit charge for vans which emit CO2 in 2015-16
• 40 per cent in 2016-17
• 60 per cent in 2017-18
• 80 per cent in 2018-19
• 90 per cent in 2019-20.
From 2020-21, there will be a single van benefit charge applying to all vans. This change will impact those currently with vans and could result in some changes in practices.

Fuel benefit charge

From 6 April 2016, the multiplier will continue to increase by reference to RPI for both company cars and vans. For cars in the 2015/16 tax year it is £22,100 (2014/15: £21,700), but for vans it will be £594 (2014/15 is £581).

Intermediaries reporting

From 6 April 2015, intermediaries must return details of all workers they place with clients where they do not operate Pay As You Earn (PAYE) on the workers’ payments.

The returns must be sent to HMRC once every three months, with the first is due on 5 August. In the report the intermediary will be required to provide specific personal details about themselves and those workers who have been paid without PAYE, in the required format.

The definition of an employment intermediary is wider than many might have thought including not just employment agencies but also others who might provide workers to an end client. Further details can be found on www.gov.uk.

Employment intermediaries - restriction of relief for travel and subsistence 

The government will consult on restricting travel and subsistence reliefs for workers engaged through an employment intermediary and under the supervision, direction and control of the end-user. This measure will impact those with over-arching contracts of employment (following the Reed Employment Plc & Ors v HMRC [2014] UKUT 0160 (TCC) employment case), as well as other working arrangements involving the use of employment intermediaries, such as Personal Service Companies and Umbrella Companies. 

A consultation is likely to happen over the summer with changes taking effect from 6 April 2016. 

Employee incentives

This change will apply to certain employees holding shares as the capital gains tax entrepreneurs’ relief (ER) qualification rules are amended for disposals on or after 18 March 2015. It is targeted at structures under which executives would be directors of and each hold 5 per cent shareholdings in, a specially-formed company which in turn held growth shares representing 10 per cent of the ordinary share capital of a trading company (taking advantage of the definition of joint venture in the ER legislation).

Review of employment status

In the budget the government stated that it welcomed the report from the Office of Tax Simplification on employment status issued on 3 March and that it would respond to the recommendations set out in the report in the next parliament.

 By Susan Ball

Susan Ball is head of the employment advisory
team at Crowe Clark Whitehill, a leading
national audit, tax and advisory firm.