The Government has published the first draft of the Finance Bill 2015 which includes most of the legislative measures announced by the Chancellor in his Autumn Statement. Thankfully there are relatively few changes that will have a practical impact from an HR perspective, but we have summarised below some of the key points to note.
Expenses and benefits taxation
A number of measures have been announced which are intended to simplify the tax system for expenses and benefits reporting. These measures would come into force on 6 April 2016, except the trivial benefits tax exemption which will come into force on 6 April 2015. These measures build on previously announced changes that have been made as a result of the Office of Tax Simplification’s recommendations.
Abolition of £8,500 lower earnings exemption
Currently, employees earning less than £8,500 per year do not pay income tax on benefits in kind provided by their employer, and the employer does not pay Class 1A National Insurance contributions in respect of such benefits. It is proposed to remove this exemption (subject to certain limited exceptions).
Voluntary payrolling of benefits in kind
HMRC will have power to allow employers to put taxable benefits in kind through the payroll instead of reporting them on a Form P11D.
Tax exemption for business expenses and abolition of the dispensation regime
There will be a new tax exemption for qualifying business expenses to replace the current system whereby unless a dispensation is obtained, expenses need to be reported on a P11D even if tax relief is available. However, the exemption will not apply to expenses payments provided as part of a salary sacrifice arrangement. Any dispensations currently in place will expire on 5 April 2016.
Exemption from tax for trivial benefits
There will be a new tax exemption for benefits in kind provided to employees of less than £50 per employee.
National Insurance contributions
Employer NICs will be abolished in respect of apprentices under the age of 25 with effect from 6 April 2016.
Taxation of non-domiciles
The Remittance Basis Charge paid by non-domiciled individuals who have been UK resident for more than 12 of the previous 14 tax years will be increased from £50,000 to £60,000, and a new RBC of £90,000 will be introduced for individuals who have been UK resident for 17 of the previous 20 tax years. The RBC for individuals who have been UK resident for 7 of the previous 9 tax years will remain at £30,000.
Measures not included in the Finance Bill 2015
There are no changes in the Finance Bill regarding the taxation of termination payments (which was one of the areas in which the OTS had made proposals). It is possible that the OTS recommendations will be addressed in additional guidance in the short term, with any more significant changes subject to further consultation.
The government has confirmed that it will not be proceeding with two changes relating to employment-related securities that had been proposed by the OTS. Those are the ‘marketable security’ proposal which would have changed the way employment-related securities are taxed, and the ‘employee shareholding vehicle’ proposal which would have provided a safe harbour vehicle for holding shares for employees.
Abbiss Cadres Comment
The changes to expenses and benefits taxation are welcome and should help to reduce the administrative burden for employers. The exemption for trivial benefits will make it simpler for employers to show their appreciation for the hard work of their employees (for example, buying them a small gift on their birthday). The current business expenses and dispensation regime is also complex and time consuming for employers, so reform is long overdue. Employers should review existing policies in advance of the changes taking effect to ensure that they can take advantage of the new regime.
Employees should not be affected by the abolition of the £8,500 exemption in practice, as individuals do not usually start to pay income tax until their earnings exceed £10,000. In respect of the few employers who have employees earning less than £8,500, the small additional NICs cost should be balanced against the reduced administration (there will no longer be any need to complete a Form P9D or keep track of whether employees fall above or below the limit).
For further information or to discuss the issues raised, please get in touch.
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