Budget 2016 Employment issues – “work in progress”
The Budget document highlights the Government’s concern that the varying types of remuneration coupled with the varying types of workers (e.g. individuals or companies) have created an unlevel playing field in the taxation of remuneration.
Measures announced in the budget aim to treat the different forms of income in a similar way with the end goal “a fairer, more sustainable tax system for everyone”.
Some of these measures have been confirmed whilst others are to be consulted on by HMRC. Therefore this area is very much still a work in progress.
Changes that have been confirmed:
Class 2 National Insurance
From April 2018 Class 2 National Insurance, the weekly rate for the self-employed, will be abolished. (The 2015/16 rate of Class 2 is £2.80). This announcement is no surprise; it was the subject of a consultation published on 9 December 2015.
We are now waiting for the Government to confirm how the self employed will access contributory benefits (such as the state pension) in the future.
From April 2018 the exemption from National Insurance on ex gratia termination paymentswhich are already subject to income tax is being abolished for Employer’s (but not Employee’s) National Insurance. The government will also consult on the tightening of the £30,000 income tax exemption for ex gratia payments.
This area continues to be targeted by the government and is one which is often associated with structures such as Employee Benefit Trusts. The 2016 budget confirms there will be a new charge on loans made through disguised remuneration schemes, which are still outstanding on 5 April 2019 and have not already been taxed.
Employee Shareholder Status (ESS)
Under ESS, companies could give employees shares with a value up to £50,000 in return for the employee giving up certain employment rights. Broadly the employee paid tax on the value of the shares but on exit the gains were completely tax free. The benefit of this relief has now been significantly reduced – for any ESS agreements entered into after 16 March 2016 the capital gains tax exemption is restricted to £100,000.
Travel and Subsistence expenses
Following a consultation in July 2014, it has been confirmed that the rules for employees and travel and subsistence expenses will remain unchanged. However, as announced last year, restrictions will be introduced to restrict home to work travel from April 2016 for workers engaged through an intermediary.
Payrolling of benefits in kind
The payrolling of certain benefits in kind will be possible from April 2016 which will reduce the need to submit forms P11D. The reporting and payment of Class 1A NIC remains unchanged. Guidance published in February 2016 confirmed employers must register before 6 April 2016 to start payrolling for 2016/17 in order to give HMRC time to amend employees’ tax codes.
Trivial benefits in kind
A statutory exemption from income tax and Class 1A National Insurance is introduced for qualifying trivial benefits in kind costing £50 or less (including VAT) from 6 April 2016. A corresponding exemption for Class 1 NICs will take effect “later in the year”.
Employer provided pension advice
The exemption in connection with employer arranged pension advice will increase from £150 to £500 to take effect from April 2017. The exemption applies to tax and National Insurance.
Changes which are subject to HMRC consultation:
The Government is considering limiting the range of benefits that attract income tax and National Insurance when provided via salary sacrifice. We expect pension saving, childcare and health related benefits such as cycle to work to be specifically excluded from this anti-avoidance provision, as outlined in the budget document.
The Government recognise that the current IR35 rules, i.e. individuals working via an intermediary, are complex and create uncertainty. They will therefore consult on a simpler set of tests and online tools that will provide a clear answer as to whether IR35 applies. This follows the announcement that entities in the public sector will now be responsible for determining whether the IR35 rules should apply and the correct tax is paid. Is the public sector a guinea pig for the private sector?
If you would like to discuss this further please contact Lynsey Lord on 020 7236 2601 or 01727 869141.
Date: 17th March, 2016
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