Summer Budget 2015: payroll impacts

Sumer Budget 2015: the payroll aspects

I wrote this for AccountingWeb last week but reproduce it here with some additional material that has emerged over the weekend

Whilst the focus of the Budget aftermath was on the cuts to welfare there was plenty for employers to home in on too. Here are my observations:

 

  • A new premium of 50p on top of the adult rate of the national minimum wage for those aged 25 and over to be known as the national living wage (NLR):
    • The rate will therefore be £6.70 for those aged 21 and over from 1 October until April 2016 and then £7.20 for those aged 25 and over
    • This is effective from April 2016 not 1 October when the rates usually change but is it 1st April or 6th?
    • Payroll software will have another validation check to perform based on DOB
  • The Employment Allowance will increase to £3000 from 6th April 2016 but eligibility will be restricted
    • Owner-managed businesses where the director is the sole employee will no longer be eligible
    • We will need clear guidance as to what this means in terms of company structures: The Regulator has struggled in this area but has now provided much needed clarity so HMRC will need to be equally clear
    • Agents and owner-managed businesses themselves will the need to set the EPS marker to N from April 2016 to stop the credit being applied by HMRC to the PAYE scheme
  • There will be an ‘apprenticeship levy’ payable by large employers
    • How will this be administered – one wonders if it will be RTI driven as the size of the PAYE scheme will be crucial?
  • Pensions tax relief and other changes:
    • The lifetime allowance reduces to £1m from £1.25m from 6.4.16
    • The annual allowance:
      • Tapers from £40,000 to £10,000 for those with income over £150K excluding employee pension contributions but including employer DC pension contributions and the value of DB benefit accrual at a rate of £1 for every £2 over £150K (this is to factor in the value of sacrificed contributions)
      • As a result all pension input periods will be aligned with the tax year so any open periods will be treated as ending 8.7.15 and a new one will then run 9.7.15 to 5.4.16. So members will have two pension input periods ending in the 2015/16 tax year with a total annual allowance of £80,000 for periods ending in this tax year (plus any available carry forward from the previous three tax years)
      • Pension input periods will then run 6.4.16 – 5.4.17 and so on which has a significant administration impact that needs to be worked through

 

In response HR and reward professionals will need to consider which employees need to come out of pension membership and whether any salary compensation will be payable as an alternative

  • Lump sum death benefits paid on or after 6 April 2016, they will be taxed at the recipient’s marginal rate rather than 45%.
  • There will be a consultation on improving the pension transfer process and the charges being incurred for these since the pension freedoms were introduced in April of this year
    • The consultation on the future of pension tax relief that closes on 30.9.15 could well impact pension salary sacrifice (this was the statement : ‘The government will actively monitor the growth of salary sacrifice schemes that reduce employment taxes and their effect on tax receipts’) and the possibility of Class 1a NICS at 13.8% being levied on pensions contributions with therefore a wider impact on reward strategies
  • Changes to the personal allowance for 2016/17 and 2018/19:
    • The increase to £11,000 from 5.4.16 (and then £11,200 for 2017/18) will see the end of the Y suffix tax code as individuals born before 6.4.38 will no longer have a higher personal allowance. There will be a universal tax allowance that is not age dependent. There was some confusion over the abolition of the P code this year so hopefully the abolition of the Y suffix codes will be smoother and a global instruction for payroll software to move all Y codes to L will be forthcoming
    • The basic rate threshold will be £32,000 for 2016/17 and £32,400 for 2017/18
    • The higher rate threshold and NICs UEL will be £43,000 for 2016/17 and £43,600 for 2017/18
    • The £100,000 income limit remains so that the full personal allowance is lost at
      • £122,000 for 2016/17 and £122,400 for 2017/18. The income limit and the loss of the personal allowance is still widely misunderstood by employees, so HR and payroll professionals would do well to spell out once again that this is a personal matter and that if the employee does not alert HMRC if their total income is likely to reach the limit they will not have the allowance tapered and will have a tax underpayment at year end, and a nasty P800 surprise!
      • The £100,000 limit will now apply to all pensioners as the £27,700 limit that applied to the age-rated personal allowance will be abolished
  • Voluntary payrolling of benefits-in-kind will be introduced for all benefits except accommodation, loans and vouchers from 6.4.17
    • The demise of the P11d approaches – legislation will be needed to deal with these final benefits that are either tax year driven in terms of the cash equivalent value or non-aligned between tax and NICs in respect to vouchers
      • The registration tool for moving to the initial payrolling choices from 5.4.16 is due to be available at the end of this month (July). Even employers currently payrolling will have to register
  • New reporting rules for company cars will be introduced in 2017/18
      • Presumably this will be to capture the other data relating to emissions and list price that is on the P11D that will be lost during the move to payrolling the cash equivalent value
    • The company car tax percentages of list price will increase by 3 percentage points for cars emitting more than 75 grams of carbon dioxide per kilometre (gCO2 /km), to a maximum of 37%, in 2019-20.
      • Nothing on an AMAP for electricity as a fuel or an electricity fuel scale charge?
    • The £50 trivial benefit exemption that was due for this year is to be introduced on 6.4.16
      • We are told this will still include vouchers as was due to be the case this year until the last minute withdrawal?
    • Tax relief on travel and subsistence expenses: following the OTS report there will be a review of the rules underlying the tax treatment of travel and subsistence expenses. A discussion paper will be published shortly outlining a potential framework
      • Again this is overdue as a rewrite of the 480 and 490 booklets was promised by May this year after the OTS report was first considered by the government
      • A consultation has also been published on stopping workers employed by intermediaries from using the business travel exemption to mask what is in reality home to work travel to each contract – this follows the Reed case
  • Student loans:
    • The government will consult on freezing the loan repayment threshold for the next five years.
      • This is interesting as HMRC has told us only this week that they expected BIS to announce a threshold change for April 2016 for plan 1 students ie those currently repaying at £17,335. There is no legislation in place to increase this threshold so new regs would have been needed. Perhaps BIS’ announcement is simply that the Plan 1 threshold will remain at £17,335 as we had expected and Plan 2 will be introduced at £21,000
  • Perhaps the most interesting comments in the Budget are those that were short on detail but could be big on impact
    • ‘The government will publish a roadmap by the end of the year showing how it will transform tax administration for individuals and small businesses over this Parliament. Over the summer, HMRC will begin discussing the policy choices underpinning this roadmap with key stakeholders and delivery partners, including small businesses and customer representatives’
      • What does this mean for the RTI compliance regime, there was no response to the penalty condoc in the budget?
    • ‘The government will extend HMRC’s powers to acquire data from online intermediaries and electronic payment providers to find those operating in the hidden economy. We will legislate at Finance Bill 2016 to achieve this, following a consultation on the detail’
      • Another RTI reporting requirement perhaps along the lines of the intermediaries return?
    • ‘The government will invest around £300 million over 5 years from 2016 to tackle non-compliance by small and mid-sized businesses, public bodies and affluent individuals. This measure will result in additional tax receipts of over £2 billion by 2020-21.’
      • We can only hope that there is an acceptance that some of this (almost the same as the savings employers and agents were due to make from the implementation of RTI!) needs to be spent on dealing with HMRC’s underlying RTI and accounting systems’ issues that have caused so much corrupt data, rather than the dogged belief that this is all down to businesses being non-compliant
  • ‘A voluntary Code of Practice defining the standards HMRC expects large businesses to meet in their relationship with HMRC’
      • What about a statutory code of practice in respect of the standards (both large and small) businesses deserve in their treatment by HMRC?
  • ‘Following recommendations by the OTS, the government will consult on simplifying the tax and NICs treatment of termination payments and the tax treatment of travel and subsistence.  We anticipate that the consultation papers will be published in the coming weeks’
    • At last – it was a year ago OTS published their report.
    • Good to see the OTS will now be put on a permanent footing and will be charged with taking forward the hot potato that is Tax/NICs alignment, but what about their proposals on living accommodation from last July?