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Home / Blog / Autumn Statement 2016 - Employment Tax Legislative Update

Autumn Statement 2016 - Employment Tax Legislative Update

6 December 16 | By: Jas Jhooty

Gov.uk

Personal Allowance and the higher rate threshold

As announced at Autumn Statement 2016, the government will raise the Income Tax Personal Allowance to £12,500, and the higher rate threshold to £50,000, by the end of this Parliament. Next year, the Personal Allowance will rise to £11,500 and the higher rate threshold to £45,000.

National Insurance thresholds

As announced at Autumn Statement 2016 and as recommended by the Office of Tax Simplification (OTS) in March 2016, the government will align the secondary (employer) threshold with the primary (employee) threshold for the National Insurance contributions (NICs). This means that from April 2017, both employers and employees will start paying NICs on weekly earnings above £157. The changes will be made through regulations as part of the routine NICs re-rating process and will come into force on 6 April 2017.

More information can be found here.

Salary sacrifice limitation

As announced at Autumn Statement 2016 and following consultation over the summer, the government will legislate in Finance Bill 2017 to remove the Income Tax and employer NICs advantages of salary sacrifice schemes. The taxable value of benefits in kind where cash have been forgone will be fixed at the higher of the current taxable value or the value of the cash forgone. This includes benefits that are currently tax exempt. As outlined in the consultation, the new rules will not affect pensions saving, employer provided pensions advice, childcare, or Cycle to Work. Following consultation, the government has also decided to exempt Ultra-Low Emission cars (ULEVs), with emissions under 75 grams of CO2 per kilometre, to incentivise the take-up of these vehicles.

This change will take effect from 6 April 2017. Those already in salary sacrifice contracts at that date will become subject to the new rules in respect of those contracts at the earlier of:

  • an end, change, modification or renewal of the contract
  • 6 April 2018, except for cars, accommodation and school fees when the last date is 6 April 2021

A summary of responses to the consultation, and more information can be found here.

Off-payroll working in the public sector: reform of the intermediaries legislation

As announced at Autumn Statement 2016 and following consultation over the summer, the government will legislate in Finance Bill 2017 to reform the off-payroll rules (often known as IR35) in the public sector. This was first announced at Budget 2016.

Responsibility for operating the off-payroll working rules, and deducting any tax and NICs due, will move to the public sector body, agency or other third party paying an individual’s personal service company (PSC). The change will come into effect from 6 April 2017 and apply across the UK.
As a result of feedback received during consultation, the 5% tax-free allowance for general business expenses, available to workers currently applying the rules, will be withdrawn for PSCs working in the public sector. This will simplify administration and reflects the fact that PSCs no longer have responsibility for applying the rules. Public sector bodies will be responsible for determining whether or not the rules apply and will be required to share this information with agencies in order for them to operate the rules correctly. To address concerns about acting in good faith on incorrect or false information, transfer of liability provisions will be introduced to provide protection. Public sector bodies in scope are those subject to the provisions of the Freedom of Information Act 2000 and the Freedom of Information (Scotland) Act 2002. The rules remain unchanged for the private sector.

A technical note, the summary of responses to the consultation and more information can be found here.

Reform of the tax and NICs treatment of termination payments

As announced at Budget 2016 and confirmed at Autumn Statement 2016, the government will legislate in Finance Bill 2017 to tighten and clarify the tax treatment of termination payments. This includes:

  • making all contractual and non-contractual payments in lieu of notice (PILONs) taxable as earnings
  • requiring employers to tax the equivalent of an employee’s basic pay if notice is not worked
  • removing foreign service relief for employees who have spent time working outside of the UK

Legislation will also be introduced in the NICs Bill 2017 to align the tax and employer NICs treatment of termination payments so that employer NICs will be payable on the elements of the termination payment exceeding £30,000 on which Income Tax is due. The first £30,000 of a termination payment will remain exempt from Income Tax and National Insurance.

A technical consultation on draft legislation was held over the summer. The government has listened to employers and made a number of changes to make the rules easier for employers to operate. These changes include requiring the employer to calculate post-employment notice income on basic pay only.
The measure will take effect from 6 April 2018.

More information can be found here.

Changes to tax treatment of foreign pension regimes

As announced at Autumn Statement 2016, the government will legislate in Finance Bill 2017 and introduce regulations to align the tax treatment of foreign pensions more closely with the UK’s domestic pension tax regime.
Changes will include:

  • bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic pensions and lump sums
  • closing specialist pension schemes for those employed abroad (section 615 schemes) to new saving
  • extending from 5 to 10 tax years the UK’s taxing rights over recently emigrated non-UK residents’ foreign lump sum payments from funds that have had UK tax relief
  • aligning the tax treatment of funds transferred between registered pension schemes
  • updating the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes

More information can be found here.

Simplifying PAYE Settlement Agreements

As announced at Autumn Statement 2016 and following consultation, the government will legislate in Finance Bill 2017 to simplify the process for applying for and agreeing PAYE Settlement Agreements (PSAs). This removes the requirement for employers to obtain up-front agreement from HMRC for items to be included in a PSA. The changes will take effect from 6 April 2018.

A summary of responses to the consultation and more information on this measure can be found here.

Review of the valuation of benefits in kind

As announced at Autumn Statement 2016, the government will consider how benefits in kind are valued for tax purposes. The government will publish at Budget 2017 a call for evidence on the valuation of benefits in kind, and additionally a consultation on employer-provided living accommodation.

Company Car Tax – bands and rates for tax year 2020 to 2021

As announced at Autumn Statement 2016, and following consultation, the government will legislate in Finance Bill 2017 for new, lower bands for the lowest emitting cars. For cars with emissions below 50 gCO2/km bands will be based on the electric range of the car. The relevant percentage for cars emitting greater than 90 gCO2/km will rise by 1 percentage point.

More information can be found here.

Alignment of dates for making good on benefits in kind

As announced at Autumn Statement 2016 and following consultation over the summer, the government will legislate in Finance Bill 2017 to align the dates for making good on benefits in kind, where an employee makes a payment in return for the benefit in kind they receive. This has the effect of reducing the taxable value of the benefit in kind, often to zero. Legislation in Finance Bill 2017 will set the date for an employee to make good on benefits in kind which are not accounted for in real time through PAYE (benefits in kind which are not payrolled). Following the consultation, the government concluded that 6 July following the end of the tax year is a an appropriate date, so the taxable value of the benefit in kind will be reduced or removed if making good takes place by that date.

The change will affect making good on a tax liability arising in the tax year 2017 to 2018 and subsequent years.

A summary of responses to the consultation and more information on this measure can be found here.

Assets made available without transfer of ownership

As announced at Autumn Statement 2016, the government will legislate in Finance Bill 2017 to set out a detailed method for calculating the taxable value (cash equivalent) of an asset provided to the employee which is made available for private use. This means that employees will just pay tax for those days on which the asset is available for private use. This will provide clarity for both employees and employers. The changes will take effect from 6 April 2017.

More information can be found here.

Legal Support

As announced at Autumn Statement 2016, the government will legislate in Finance Bill 2017 to ensure that all employees (or former employees) called to give evidence, for example, at an inquiry, will be able to receive legal support funded by their employer tax-free. The changes will take effect from 6 April 2017.

More information can be found here.

Employee business expenses

As announced at Autumn Statement 2016, the government will publish a call for evidence at Budget 2017 on the use of the Income Tax relief for employees’ business expenses, including those that are not reimbursed by the employer.

Employer – arranged pensions advice exemption

As announced at Budget 2016, in response to the Financial Advice Market Review, the government will legislate in Finance Bill 2017 for a new Income Tax exemption and NICs disregard to cover the first £500 worth of pension advice provided to an employee in a tax year. It will allow advice on both pensions and, general financial and tax issues relating to pensions. The measure will take effect from 6 April 2017.

More information on this measure can be found here.

How emTax can help

Please do not hesitate to contact us if you are interested in finding out more on how these wide ranging new measures will affect you.

Our consultants can offer advice on how to plan for a smooth transition to implement these new measures and can also advise you on best practice procedures to minimise the impact these changes will have on your business.

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