The Budget for employers: change, but no headlong rush
Employers would be forgiven for having expected this Budget to herald major change, potentially in a number of different arenas. The last six months have seen consultations or reviews on changes to the IR35 rules, the treatment of termination payments, reform of the travel and subsistence rules, employer-provided accommodation, salary sacrifice and (under the banner of the OTS) the alignment of income tax and NICs.
Reform of IR35
Last year’s consultation on the reform of the IR35 rules noted that there was “significant non-compliance” (at an estimated cost of some £440m per annum) with the current rules. It is perhaps surprising, then, that the Budget announcements affect only those working in the public sector. The proposal to pass the requirement to operate IR35 from the personal service company (PSC) to the public sector body engaging the worker will not come without complications (what happens, for instance, where an individual does not agree with a public sector body’s conclusion that IR35 should apply?), and it may be that the Government is testing the waters here for wider change in the future. Private sector employers engaging workers through PSCs should watch this space. More detail on the change can be found in our separate article above.
The Government has announced both a tightening of the income tax exemption and an introduction of an employer NIC on amounts over £30,000 where income tax is due. The changes, covered in more detail above, go some way to simplifying the position, but will represent an increased cost for employers.
OTS review of the alignment of income tax and NICs
Although a full response to the recently published OTS review of the alignment of income tax and NICs will come “in due course”, the Government has confirmed that it will at least consider two of the major proposals. The OTS will be asked to review “the impacts of moving employee NICs to an annual, cumulative and aggregated basis” (along the same lines as PAYE income tax) and “moving employer NICs to a payroll basis”. This latter proposal would see employers calculate NICs due on their annual payroll cost (as is already proposed for the Apprenticeship Levy) — a substantial move from the current system, which, as the OTS notes in its review, would see “some employers…pay more, some less”. We will have to wait for the Government’s full response to the OTS’s package of recommendations, and the terms of reference for the two areas that will be considered further, but it seems that change may be coming.
Travel and subsistence
One surprise came in the response to last year’s consultation on the reform of the rules surrounding tax relief for travel and subsistence expenses, where the Government has announced that it will not take forward change “at this time”. The proposals would have represented a major reform, and, with the current rules being “generally well understood”, the Government has clearly concluded that change would bring too much complexity, in the short term at least.
Expenses and benefits
April 2016 sees significant change to the expenses and benefits regime, with, amongst other changes, the introduction of both a business expenses exemption and of voluntary payrolling of benefits. The Budget has announced further changes, with voluntary payrolling to be extended to cover non-cash vouchers and credit tokens from April 2017. There will also be a consultation on changes to the process for agreeing PAYE Settlement Agreements — an issue that has been repeatedly raised in the past by the OTS.Apprenticeship Levy
The Government has previously announced that those paying the Apprenticeship Levy will “be able to get out more than they put in”. The Budget included more information on how that might be achieved, in the form of an announcement that “employers will receive a 10% top-up to their monthly levy contributions in England and this will be available for them to spend on apprenticeship training through their digital account”. But employers will need to wait for further detail on the operating model and further information around what will qualify as an ‘apprenticeship’.
It would be an unusual Budget indeed these days without a further tightening of the rules to deal with perceived avoidance: this Budget is no different, with changes announced on disguised remuneration and a shot across the bows on salary sacrifice.
The Budget makes changes to the disguised remuneration rules aimed at ending the use of Employee Benefit Trusts (EBT) and similar arrangements to avoid income tax and NIC charges. Current legislation prevents the disguised remuneration rules from applying to investment growth within EBTs where taxpayers have taken advantage of the EBT Settlement Opportunity, and therefore paid the PAYE and NIC on the basis that the disguised remuneration was earnings from their employment. This relief is to be withdrawn after 30 November 2016, giving a short period of grace for the disguised remuneration rules to operate as they do now. A new charge aimed at outstanding loans made before the disguised remuneration rules came into force will take effect from 5 April 2019, where all or part of the loan remains outstanding at that time. HMRC have also said that various other changes will be made to tighten the rules so that they operate as Parliament intended.
The Government had previously stated concern over the growing use of salary sacrifice. Following a review, it has announced that it is considering “limiting the range of benefits that attract income tax and NICs advantages”. However, any changes will not apply to key benefits, such as pension contributions and childcare.