On 20 March, Chancellor George Osborne presented his 2013 Budget. There are some measures in the Budget that will find real benefit in the pockets of employers and employees.
For the tax year 2014/15, the personal allowance for those born after 5 April 1948 will be increased to £10,000 (being introduced one year ahead of schedule), and the basic rate limit will be reduced to £31,865. As set out at Budget 2011, once the personal allowance has reached £10,000, it will then increase by the Consumer Prices Index (CPI) in future years, starting from the tax year 2015/16.
There was no change announced in the basis personal allowance for the tax year 2013/14 which increased from £8,105 to £9,440. Neither did Budget 2013 announce any change to the 45 per cent rate of the additional rate of income tax.
The Government’s above inflation increases in the basic personal allowance from April 2014 will mean that by then, 2.7 million low income individuals aged less than 65 will have been lifted out of income tax altogether and from April 2014 the typical basic rate taxpayer will pay £705 less income tax a year in cash terms as a result of the Government’s actions.
National Insurance employment allowance
From April 2014, the Government is introducing an Employment Allowance of £2,000 per year for all businesses and charities (regardless of size) to be offset against their employer Class 1 secondary NICs liability. The allowance will be claimed as part of the normal payroll process through Real Time Information (RTI).
The Government will engage with stakeholders on the implementation of the measure after the Budget and is seeking to introduce legislation later in the year.
This new allowance is expected to mean that the majority of very small employers will not be required to pay any secondary Class 1 NICs, and this should therefore encourage more very small employers to take on employees.
Abolishing contracting-out for salary-related pension schemes
The Government was intending to introduce a new flat-rate State pension from April 2017 of £144 a week (at today’s values). Contracting-out of the State Second Pension through a salary related (defined benefit) occupational pension scheme was due to be abolished from April 2017. Contracting-out through a money purchase (defined contribution) scheme ended from April 2012.
The single-tier pension and the end of all contracting-out will be brought forward by a year to April 2016. Therefore, from this time all employees and employers will be liable to pay standard rate Class 1 NICs. The increase in NICs will be partially used to finance the Employment Allowance, as above.
Reduction in pension tax relief
As announced in the Autumn Statement 2012, legislation will be introduced in Finance Bill 2013 to reduce the pensions tax relief annual allowance (the amount of pension contributions against which full tax relief is available) from £50,000 to £40,000 and to reduce the standard lifetime allowance from £1.5 to £1.25 million for the tax year 2014/15 onwards.
From 6 April 2014, the Government is doubling from £5,000 to £10,000 the de minimis amount that can be loaned to an employee at any one time during the tax year in question. As long as the total outstanding balances on all such loans do not exceed the threshold at any time in a tax year, there will be no tax charge.
This will greatly help employers in funding the rising cost of season tickets, for example, into London each year.
Company car tax
Each year, the Government takes action to ‘squeeze down’ the levels at which employees are charged income tax on the benefit of being provided with car made available for their private use.
From the beginning of the tax year 2015/16, there will be two new appropriate percentage bands for company cars emitting 0-50g of carbon dioxide (CO2) per kilometre (5 per cent) and 51-75g CO2 per km (9 per cent). In addition, as announced at Budget 2012, the remaining appropriate percentages will be increased by two percentage points for cars emitting more than 75g CO2 per km, to a new maximum of 37 per cent.
Budget 2013 also sets out rates for company cars emitting 75g CO2 per km or less for the tax year 2016/17. In 2016/17, the appropriate percentages of the list price subject to tax for the 0-50g CO2 per km band will be 7 per cent; and 11 per cent for the 51-75g CO2 per km band. All other appropriate percentages will be increased by two percentage points to a maximum of 37 per cent. The 3 percentage point diesel supplement will be removed.
In addition, Budget 2013 provides a commitment that in 2017/18 there will be a 3 percentage point differential between the 0-50 and 51-75 g/km CO2 bands and between the 51-75 and 76-94 g/km CO2 bands. In tax years 2018/19 and 2019/20 there will be a 2 percentage point differential between the 0-50 and 51-75 g/km CO2 bands and between the 51-75 and 76-94 g/km CO2 bands.
Budget 2013 announced that from 6 April 2014, the Fuel Benefit Charge multiplier will increase by Retail Prices Index (RPI) for both cars and vans. The Government also announced it will freeze the Van Benefit Charge at £3,000 for the tax year 2013/14 and will increase it by the RPI only from 6 April 2014. The Government is committed to pre-announcing the Van Benefit Charge one year ahead.
Childcare support from autumn 2015
From autumn 2015, the Government intends the current system of Employer Supported Childcare to be phased out. This allows the first £243 a qualifying week of employer-supported childcare (e.g. childcare vouchers and employer paid for childcare) to be free of income tax for basic rate taxpayers (pro rata for higher and additional rate taxpayers).
In the place of Employer Supported Childcare, the Government is introducing a new childcare scheme from autumn 2015 to support working families with their childcare costs.
For childcare costs of up to £6,000 per year per child, support of 20 per cent will be available worth up to £1,200. From the first year of operation, all children under five will be eligible and the scheme will build up over time to include children under 12.
The scheme will provide support for families where all parents are in work and not receiving support through the Childcare Element of Working Tax Credits/Universal Credit, or where one has an income over £150,000. Support will be provided through a childcare account redeemable at any registered childcare provider.
The phasing out of the tax relief applicable to Employer Supported Childcare is likely to affect the many childcare salary sacrifice schemes that have been set up. However, the Government have stated that at the point the new childcare scheme is introduced, existing members of their Employer Supported Childcare scheme will be able to choose whether to remain in their current scheme or move to the new scheme (if they are eligible). The tax exemption available for workplace nurseries will remain.
Budget 2013 announced the Government will consult shortly on the detailed design and operation of the Tax-Free Childcare Scheme, including on how employers can continue to play a role in supporting their employees with childcare costs.
Overseas Workday Relief
Budget 2013 confirms, from April 2013, the introduction of Overseas Workday Relief (OWR) applicable to those employees who carry out duties both in the UK and overseas under a single contract of employment.
OWR will be placed on a statutory footing alongside the introduction of the statutory residence test and the abolition of the concept of Ordinary Residence. OWR will be available to all those coming to the UK who are not domiciled in the UK regardless of their intention to be based in the UK and will be available for the tax year in which they become UK resident and the following two tax years.
The measure will broadly replicate the treatment which currently exists under Statement of Practice 1/09 (SP1/09) for certain employees who are resident but not ordinarily resident in the UK. The legislation will also include some additional easements over and above the current treatment.
Employee shareholder employment status
Despite its lukewarm reception, the Government is to go ahead with its plans for individuals who have taken up the ‘employee shareholder’ employment status. Two tax breaks are to be offered and will apply to shares received through the adoption of the new ‘employee shareholder’ status on or after 1 September 2013.
Firstly, there will be an exemption from capital gain tax (CGT) on any capital gains made by individuals on the disposal of shares acquired through the adoption of the ‘employee shareholder’ employment status.
Secondly, there will be a reduction or elimination of the income tax and National Insurance contributions (NICs) due when employee shareholders acquire shares, by deeming that they have paid £2,000 for the shares. This will ensure that the first £2,000 of share value received by employee shareholders is not subject to income tax or NICs.
Penalties for late and incorrect RTI returns
Budget 2013 provides further information on the proposed RTI penalties that will apply where RTI returns are ‘late’ being submitted; the amount paid HMRC in-year is ‘late’ being paid (this could be because the amount that is actually paid is less than what should have been paid); or the RTI return is inaccurate.
The new late filing penalties and the changes to the late payment penalties will apply on and after 6 April 2014. The changes to the inaccuracy penalties will have effect from the date that Finance Bill 2013 receives Royal Assent. The inaccuracy penalties are already in force and without this change the process for assessing and notifying these penalties to employers would be unduly complicated.
Late filing penalties will apply to each PAYE scheme, with the size of the penalty based on the number of employees in the scheme, so that different-sized penalties will apply to micro, small, medium and large employers.
Each scheme will be subject to only one late filing penalty each month, regardless of the number of returns due in the month. There will be one non-penalised default each year, with all subsequent defaults attracting a penalty. Penalties will be charged quarterly, and subject to the usual reasonable excuse and appeal provisions.
The upcoming changes to the penalty regime will also ensure penalties are based on the number of late payments relating to each tax year; ring-fence each penalty so that if further defaults arise earlier penalties do not have to be recalculated; and permit a penalty to be amended once it has been issued, rather than having to be withdrawn and reissued.
The Government may use regulations to apply a relief from late payment penalties if the sums paid by the employer do not exactly match the figures shown as deducted on the RTI returns for the relevant period. This is designed to prevent penalties being issued where there is only a small discrepancy between the return figures and sums paid over each period. However, the late payment penalty will apply where it is obvious the employer has chosen to underpay.