The draft Finance Bill 2016 was published on 9 December 2015 and contains a number of provisions that will be relevant to HR practitioners. These provisions implement the changes announced in the Government’s Summer Budget and Autumn Statement and will take effect from 6 April 2016.
The provisions may still be subject to change as the Finance Bill makes its way through the legislative process. However, given the consultation that has already taken place, and the relatively uncontroversial nature of the changes, one would expect that they will be enacted in broadly the same form as that currently proposed.
Employment and Benefits
Trivial benefits in kind
A statutory tax exemption for trivial benefits in kind (BiKs) will be introduced, replacing the more discretionary system currently in place. It is proposed that any individual BiK provided to an employee which costs £50 or less will be exempt from income tax and Class 1A National Insurance. Exempt BiKs will also not need to be reported on the annual form P11D. There will be no annual cap on the aggregate value of trivial BiKs that can be provided to any employee, other than in the case of BiKs provided to directors of ‘close companies’ and their family members who are employees (in which case there is a £300 annual cap).
The Government has made clear that the exemption is intended to cover BiKs that relate to personal events or the welfare of employees, outside the performance of their duties as an employee. An example might be flowers sent to an employee following a family bereavement. To reflect this principle, the exemption will not apply to BiKs that are provided under a salary sacrifice arrangement or which the employee is otherwise contractually entitled to.
It is refreshing that the Government has listened to the views of stakeholders during the consultation on this proposal, and in particular decided against measures such as an annual cap which could have actually increased the compliance burden for employers. This change will be welcomed by employers.
Employment intermediaries, travel and subsistence expenses
It will no longer be possible for workers engaged through employment intermediaries (such as recruitment agencies and umbrella companies) to obtain tax relief in respect of their travel expenses. Under current rules, an employee is entitled to tax relief for travel expenses to and from a ‘temporary workplace’ but not for ‘ordinary commuting’. The new rules restrict the tax relief by specifying that each engagement of the individual through the employment intermediary is a separate employment and therefore most travel by such employees to and from the workplace will be considered ordinary commuting.
The new rules will not apply where the individual providing the services is not under the supervision, direction or control of any person, in the manner in which they undertake their role (which is similar to the self-employment test under the current agency rules).
These rules will also restrict tax relief for travel expenses of individuals working through personal services companies who are within the IR35 rules.
These rules continue the Government’s drive to ensure that businesses do not use employment intermediaries in order to obtain a tax advantage, and to ensure consistency of tax treatment for individuals whether they are employed through an employment intermediary or directly through the end client.
Employee share plans for the internationally mobile: simplified
There will be a number of changes to the tax rules relating to employee shares plans. These are mainly technical in nature, and to some extent address issues arising from more substantial changes that have taken place over the last couple of years. The key change from a practical perspective will be the clarification of the tax treatment for restricted stock units (RSUs), and similar rights, held by internationally mobile employees.
Clarification on the taxation of RSUs held by internationally mobile employees
The UK taxation of RSUs held by employees resident in more than one jurisdiction over the vesting period (the period between grant and when they become entitled to the shares) has long been a matter for uncertainty. Although the changes in the Finance Act 2014 introduced a method of apportioning the taxable gain on share options, it was still unclear whether this applied to other types of share incentives such as RSUs. This had implications both for the way in which the income tax should be apportioned and how any National Insurance liability should be calculated.
Therefore, it is now proposed that all ‘rights to acquire securities’ will be taxed in the same way, and so share options and most RSUs should be subject to the same treatment for income tax and National Insurance purposes.
This change received a broad level of support from stakeholders when it was first proposed in the Autumn Statement. However, there is still the potential for different tax treatment where an RSU may deliver cash instead of shares. Although this issue was highlighted to HMRC during the informal consultation on the changes, it does not appear to have been addressed in the legislation.
Other share plan changes
Other changes in the field of employee share plans include a clarification on the procedure for determining the market value of shares when granting Company Share Option Plan (CSOP) or Save As You Earn (SAYE) options, rules permitting the late notification of tax-advantaged share plans where the company has a reasonable excuse, as well as certain technical changes to the Enterprise Management Incentives (EMI) and Share Incentive Plan (SIP) legislation.
If you have any queries on how these changes will impact your business please get in touch.
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