Employment taxes

Employer provided cars

The scale of charges for working out the taxable benefit for an employee who has use of an employer provided car are now announced well in advance. Cars are taxed by reference to bands of CO2 emissions. From 6 April 2015 the percentage applied by each band went up by 2% and the maximum charge is capped at 37% of the list price of the car.

From 6 April 2016 there will be a further 2% increase in the percentage applied by each band with similar increases in 2017/18 and 2018/19. For 2019/20 the rate will increase by a further 3%. It had been expected that the 3% diesel supplement would be removed from 6 April 2016, however this 3% differential will now be retained until April 2021.

NIC for apprentices under 25

The government will abolish employer NIC up to the upper earnings limit for apprentices aged under 25. This will come into effect from 6 April 2016. Draft regulations have been issued to define a relevant apprentice. An apprentice needs to:

• be working towards a government recognised apprenticeship in the UK which follows a government approved framework/standard
• have a written agreement, giving the government recognised apprentice framework or standard, with a start and expected completion date.

Comment

The proposals exclude apprenticeships which do not follow government approved frameworks, also known as common law apprenticeships.

Apprenticeship levy

The government will introduce the apprenticeship levy in April 2017. It will be set at a rate of 0.5% of an employer’s paybill, which is broadly total employee earnings excluding benefits in kind, and will be paid through PAYE. Each employer will receive an allowance of £15,000 to offset against their levy payment. This means that the levy will only be paid on any paybill in excess of £3 million.

National Living Wage

The government will introduce a new National Living Wage (NLW) for workers aged 25 and above, by introducing a premium on top of the National Minimum Wage (NMW). From April 2016, the NLW will be set at £7.20 an hour. This rate is 50p higher than the current NMW rate

NIC Employment Allowance

The NIC Employment Allowance was introduced from 6 April 2014. It is an annual allowance which is available to many employers and can be offset against their employer NIC liability.

From April 2016, the government will increase the NIC Employment Allowance from £2,000 to £3,000 a year. The increase will mean that businesses will be able to employ four workers full time on the new NLW without paying any NIC.

To ensure that the NIC Employment Allowance is focussed on businesses and charities that support employment, from April 2016, companies where the director is the sole employee will no longer be able to claim the Employment Allowance.

Review of employee benefits

From 6 April 2016 a number of changes are introduced relating to the tax treatment of employee benefits in kind and expenses:

• The £8,500 threshold below which employees do not pay income tax on certain benefits in kind will be removed. There will be new exemptions for carers and ministers of religion.
• There will be a statutory exemption for certain expenses reimbursed to an employee. This will replace the current system where employers have to apply for a dispensation to avoid having to report non-taxable expenses (on forms P11D).
• HMRC will be able to issue Regulations to allow employers to include taxable benefits in pay and thus account for PAYE on the benefits. Employers will therefore not have to include these items on forms P11D.

Comment

The statutory exemption for reimbursed expenses will mean that all employees will automatically get the tax relief they are due on qualifying expenses payments.

If an employer wants to pay a set rate to employees for certain expenses, the employer will be able to apply to HMRC for approval to pay or reimburse expenses of employees at a rate set out in the application. HMRC can agree (an approval notice) if they are happy that the payment is a reasonable estimate of the amount of expenses actually incurred.

Review of employment status

The government has responded to the final report of the Office of Tax Simplification (OTS) review of employment status and is taking forward the majority of recommendations.

Taxation of accommodation benefits

Following recommendations from the 2014 OTS report on simplifying the administration of employee benefits and expenses, the government will publish a call for evidence on the current tax treatment of employer provided living accommodation.

Tax relief for intermediaries on travel and subsistence

The government will legislate to restrict tax relief for travel and subsistence expenses for workers engaged through an employment intermediary, such as an umbrella company or a personal service company. Following consultation, relief will be restricted for individuals working through personal service companies where the intermediaries legislation applies. This change will take effect from 6 April 2016.

Salary sacrifice

The government remains concerned about the growth of salary sacrifice arrangements and is considering what action, if any, is necessary. The government will gather further evidence, including evidence from employers, on salary sacrifice arrangements to inform its approach.

Pensions auto enrolment minimum contribution rates

Pensions auto enrolment introduces a statutory obligation on employers to automatically enrol eligible employees in a pension scheme and pay pension contributions for the employees from the employer’s staging date. The contributions are being phased in with total minimum contribution rates initially set at 2% of qualifying earnings of which the minimum employer contribution is 1%. The contribution rates were set to increase from October 2017 to 5% (2% employer minimum) and 8% (3% employer minimum) from October 2018.

The government has announced that they will delay these two scheduled increases in automatic enrolment minimum contribution rates by six months each, to align these changes with the start of the tax year.

Real Time Information (RTI) ‘on or before’ reporting

The two year temporary relaxation, allowing existing micro-employers to report all payments they make in a tax month on or before the last payday in the tax month rather than on or before each and every payday, will end as planned on 5 April 2016.

This will align the treatment for existing micro-employers with all other employers.