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How accurate were our Budget 2016 predictions?
30 March 16 | By: Jas Jhooty
Before this year’s Budget we made certain predictions of what changes we thought the Chancellor would be making to employment tax legislation. This article assesses how accurate our predictions were.
Personal Service CompaniesThe predicted changes are going to be brought in, but only to affect Public Sector bodies. The proposed new rules are: -
- Where the public sector organisation engages directly with the intermediary, the public sector organisation will be responsible for operating the new rules and then collecting and paying the relevant tax and NICs.
- Where the public sector organisation engages the worker indirectly through the third person (the agency) that third person is responsible for operating the new rules and collecting and paying the relevant tax and NICs. The public sector body will need to inform the agency that they are contracting with a public sector body within these rules. The public sector body will also be required to check that the agency operates the rules correctly.
- The reformed rules will not apply for workers provided through an agency or similar business where the workers are employees of the agency and not supplied through their own company.
From a tax and NI perspective, the engager will need to calculate an amount of deemed employment income (and earnings for NICs). That amount is the amount of the payment made to the intermediary, less any VAT charged. It will also include a 5% deduction, reflecting the existing 5% deduction rules that apply to PSCs. Responsibility for paying secondary Class 1 employer NICs on the deemed employment income will also shift from the PSC to the relevant engager.
A consultation document on this matter has yet to be published.
New rules for taxing termination/redundancy paymentsAs predicted the Government have been looking at simplifying the rules relating to termination payments. The government have announced that legislation will be introduced:
- clarifying and tightening the rules about the taxation of termination payments. This will include introducing legislation to clarify that all payments in lieu of notice and certain damages payments are taxable as earnings and removing foreign service relief.
- Aligning the employer NICs and tax treatments of termination payments, so employers will have to pay NICs on the elements of termination payments that exceed £30,000. These changes will be legislated in Finance Bill 2017 and a future NICs Bill and will take effect from April 2018. A technical consultation will be published over the summer.
Fortunately, prior proposals to link the £30,000 tax free sum to Statutory Redundancy Pay appear to have been abandoned.
Changes to Travel & Subsistence rules
Due to the publication of a new Booklet 490 in Autumn 2015, which HMRC claim has provided greater clarification of the existing Travel & Subsistence rules, the government has decided not to take forwards any of the proposals previously up for consultation. Therefore, Travel & Subsistence rules will remain as they currently are.
End of salary sacrifice schemesAs predicted the Government are considering limiting the range of benefits that attract income tax and National Insurance contributions (NICs) advantages when they are provided as part of salary sacrifice schemes. However, the government’s intention is that the following will continue to be available:
- pension saving,
- childcare, and
- health-related benefits such as Cycle to Work schemes
Many people have expressed concern that the government would attack salary sacrifice schemes as part of their agenda of clamping down on tax avoidance. It is, therefore, reassuring to see that the core salary sacrifice schemes look as though they will be protected.
How emTax can help
We at emTax are committed to providing the best insight into future changes to employment tax legislation to enable employers to have enough forewarning to remain compliant. We are therefore pleased that even though all of our predictions were not entirely correct, most of them were not wide of the mark.
For advice on any employment tax matter please do hesitate to contact us.