Off-payroll working in the public sector
From April 2017, where workers are engaged through their own limited company to work for a public sector body, responsibility to apply the intermediaries rules (commonly known as the IR35 rules) will fall to the public sector body, agency or other third party paying the worker's company. The public sector body, agency or other third party will be liable to pay any associated income tax and National Insurance.
Where individuals are working through their own limited company in the private sector, the existing rules will continue to apply.
To help the public sector body, agency or other third party to determine whether the intermediaries rules apply, HMRC will provide a new interactive online tool. The aim is to support the decision making process, not only for public sector employers, but also for individuals working through their own limited company in the private sector.
Apprenticeship levy and apprenticeship funding
Larger employers will be liable to pay the apprenticeship levy from April 2017. The levy is set at a rate of 0.5% of an employer's pay bill, which is broadly total employee earnings excluding benefits in kind, and will be paid along with other PAYE deductions. Each employer receives an annual allowance of £15,000 to offset against their levy payment. This means that the levy will only be paid on any pay bill in excess of £3 million in a year.
Draft apprenticeship levy regulations make it clear that only where an employer has a levy liability, or expects to have a levy liability during the tax year, will they need to engage with reporting the apprenticeship levy to HMRC.
The levy will be used to provide funding for apprenticeships and there will be changes to the funding for apprenticeship training for all employers as a consequence. Each country in the UK has its own apprenticeship authority and each will be making changes to their scheme.
Alignment of income tax and National Insurance contributions (NICs)
Currently, liabilities to pay income tax and NICs are calculated in different ways for employees. Employers are also required to pay NICs on most of the wages and salaries paid to employees.
The Office of Tax Simplification (OTS) was tasked with a project to examine whether a closer alignment could be achieved between income tax and NICs. After its initial report in March 2016, the government asked the OTS to undertake further reviews on two recommendations from the initial report. The OTS has now published a further report on the recommendations.
The two recommendations are:
- Moving to an annual, cumulative and aggregated assessment period for employees' NICs on employment income, similar to PAYE for income tax. NICs would not be calculated separately on each employment but on all employments added together with one NIC free allowance split between them.
- Basing employer NICs on whole payroll costs. At present, employer NICs are calculated at 13.8% of employees' weekly or monthly pay, over a threshold of £156 per week. The OTS proposal is to break the link of employer NICs with the calculation of individual employees' NICs and base the calculation of employers' liabilities on total payroll costs. The OTS explored eight options of which the best would be to replace the employee threshold with a cumulative annual employee allowance per employer.
National insurance thresholds
From April 2017 the threshold above which employer and employee NICs will become payable will be aligned at £157 per week. This is as recommended by the OTS and should simplify the payment of NICs for employers.
National Living Wage and National Minimum Wage (NMW) rates
Following the recommendations of the independent Low Pay Commission, the government will increase the National Living Wage from £7.20 to £7.50 from April 2017. The government will also accept their recommendations to increase the NMW rates from April 2017 for:
- 21 to 24 year olds from £6.95 to £7.05 per hour
- 18 to 20 year olds from £5.55 to £5.60 per hour
- 16 to 17 year olds from £4.00 to £4.05 per hour
- apprentices from £3.40 to £3.50 per hour.
The NMW rates were last increased in October 2016.
The government has also announced that they will invest an additional £4.3 million per year to strengthen NMW enforcement. This will fund new HMRC teams to review those employers considered most at risk of non-compliance with the NMW. Other measures will provide additional support targeted at small businesses to help them comply and a campaign to raise awareness amongst workers and employers of their rights and responsibilities.
From April 2017, all employees called to give evidence in court will no longer need to pay tax on legal support from their employer. This should help support all employees and ensure fairness in the tax system. Currently, only those requiring legal support because of allegations against them can use the tax relief.
Forms of remuneration review
Employers can choose to remunerate their employees in a range of different ways in addition to a cash salary. The tax system treats these different forms of remuneration inconsistently and the government will therefore consider how the system could be made fairer between workers carrying out the same work under different arrangements. The review will look specifically at how the taxation of benefits in kind and expenses could be made fairer and more coherent. The government will take the following action:
The tax and employer NICs advantage of salary sacrifice schemes will be removed from April 2017. This change will not apply to arrangements relating to pensions, childcare, Cycle to Work and ultra-low emission cars. This means that employees who exchange salary for benefits will pay the same tax as individuals who buy them out of their post-tax income. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.
Valuation of benefits in kind
The government will consider how benefits in kind are valued for tax purposes, publishing a consultation on employer-provided living accommodation and a call for evidence on the valuation of all other benefits in kind at Budget 2017.
The government will publish a call for evidence at Budget 2017 on the use of the income tax relief for employees' business expenses, including those that are not reimbursed by their employer.
Employer provided cars
The scale of charges for working out the taxable benefit for an employee who has use of an employer provided car are now announced well in advance. Most cars are taxed by reference to bands of CO2 emissions. There is a 3% diesel supplement. The maximum charge is capped at 37% of the list price of the car.
From 6 April 2017 there will be a 2% increase in the percentage applied by each band with a similar increase in 2018/19. For 2019/20 the rate will increase by a further 3%.
From 6 April 2017 the appropriate percentage for cars which have neither a CO2 emissions figure nor an engine cylinder capacity, and which cannot produce CO2 emissions in any circumstances by being driven, will be set at 9%. From 6 April 2018 this will be increased to 13% and from 6 April 2019 to 16%.
For 2020/21 new lower bands will be introduced for the lowest emitting cars whilst the appropriate percentage for cars emitting greater than 90 g/km will rise by one percentage point.