Finance Bill 2017-19 reintroduces changes | KPMG | UK

Finance Bill 2017-19 reintroduces changes

Finance Bill 2017-19 reintroduces changes

The second of 2017’s Finance Bills has reintroduced all of the employment tax measures dropped before the General Election.

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It may seem like a long time ago, but only six months have passed since the first of 2017’s Finance Bills was published on 20 March 2017.

That Finance Bill, as it was originally introduced, contained provisions affecting several areas of employment tax (we wrote about the main changes here). But the subsequent announcement of a General Election and the impending dissolution of Parliament meant that many of the provisions had to be dropped from the Bill

At the time, the Financial Secretary to the Treasury (FST) promised that the omitted measures would return in a post-election Finance Bill should the Conservatives remain in power. We had hoped that the Finance Bill would be published shortly after the new minority Government was formed. But that was not to be.

The promised Finance Bill was finally published on 8 September 2017.

The measures

As expected, all of the dropped employment tax measures were included in Finance Bill 2017-19. We look at the main ones in turn:

Making good on benefits-in-kind

This change introduces a date for ‘making good’ on benefits-in-kind which are not accounted for in real time through Pay As You Earn (PAYE). The date is 6 July following the end of the tax year in which the tax liability of the benefit-in-kind arises.

The change is due to take effect retrospectively from 6 April 2017.

There is no change from the provisions as set out in the March 2017 Finance Bill.

New tax rates for ultra-low emission vehicles (ULEV)

This change introduces new rates for calculating the taxable benefit arising from a ULEV company car. 

The changes are due to take effect for the 2020/21 tax year and thereafter.

There is no change from the provisions as set out in the March 2017 Finance Bill.

Pension advice exemption

This change introduces a new income tax exemption to cover the first £500 worth of pension advice provided to an employee (including former and prospective employees) in a tax year.

This change takes effect retrospectively from 6 April 2017.

There is no change from the provisions as set out in the March 2017 Finance Bill.

Extension of relief for legal fees paid by employer

This change extends existing reliefs for employees (or former employees) who may require legal advice or indemnity insurance which is funded by their employer. Currently, such costs are only deductible from earnings for employees who have had allegations made against them in their capacity as an employee (a liability).

This change takes effect retrospectively from 6 April 2017.

There is no change from the provisions as set out in the March 2017 Finance Bill.

Termination Payments

This change is designed to ensure that non-contractual pay in lieu of notice (PILON) is subject to income tax and does not fall within the £30,000 exemption to the extent is represents “basic pay” that would have been received had the notice been worked.

The changes are due to take effect from 6 April 2018.

There is no change from the provisions as set out in the March 2017 Finance Bill and a summary of the proposals from March is here

The intention remains to amend Foreign Service Relief (FSR) as it applies to termination payments. The measure was originally included in the draft legislation published in December 2016 but was dropped from the Finance Bill published in March 2017, as the Government decided to consult further on this aspect. 

Draft clauses designed to amend FSR and for inclusion in a future Finance Bill were published on Wednesday 13 September (see below for further details).

PAYE Settlement Agreements

This change forms part of the measures to relax the process via which employers enter into PSAs with HMRC.  Consequential amendments to the PAYE regulations are anticipated in the near future to fully implement this measure. 

There is no change from the provisions as set out in the March 2017 Finance Bill.

Disguised Remuneration – The 2019 loan charge

The broad proposal is that all loans from employee benefits trust (EBTs) and other third parties made to employees or directors on or after 6 April 1999 and which remain outstanding at 5 April 2019 will attract a PAYE and NIC charge following that date.

The amount subject to PAYE and NIC will be the outstanding loan amount on that date. Loan amounts repaid before that date will not be subject to the loan charge, subject to certain anti-avoidance provisions which are designed to ensure that a genuine repayment has been made. 

There are a number of, mostly narrowly drawn, exclusions from the loan charge which mirror the loan exclusions currently found in the DR rules (e.g. on commercial loans and loans used to fund the exercise price of share options).

Unlike the other measures discussed above, in this case there are some minor technical changes to the provisions as originally set out in the March 2017 Finance Bill. However the main thrust remains the same and more information on the changes is available here.

Disguised Remuneration – Trading income provided through third parties

This change introduces provisions mirroring the existing disguised remuneration rules but targeted at the “avoidance of income tax and National Insurance Contributions (NICs) by the self-employed.” 

Broadly speaking, it introduces a charge to income tax on trading profits disguised as other receipts – this measure is to curtail any future use of such arrangements.

And to counter past use of such arrangements, the change introduces a 2019 loan charge similar to that being introduced for disguised remuneration purposes.

The changes are due to take effect retrospectively from 6 April 2017.

There is no change from the provisions as set out in the March 2017 Finance Bill.

Draft clauses for the next Finance Bill

The long awaited Finance Bill has been published. And quick on its heels were the draft clauses for the next Finance Bill – the FST announced only last week that they would be published on Wednesday 13th September 2017. As anticipated, both the amendment to FSR and the promised “close company gateway” extension to the disguised remuneration rules were amongst the draft clauses released.

Updates on both draft measures shall be published on Employers’ Club soon so please do continue to check in.

The consultation period for the draft clauses runs until 25 October 2017. 

Next Steps

If you have any queries, please do not hesitate to get in touch with your normal contact or e-mail employersclub@kpmg.co.uk.

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