Employer Review The latest tax, payroll and employee reward topics for employers Autumn 2016 In this newsletter: P04 Proposed changes P01 Employer update P04 Payroll update P01 HR update P05 Construction Industry Sheme ( CIS ) update P03 Payrolling of benefits P05 Pension/international update P03 Abolition of P11D Dispensations P06 Blick Rothenberg Employer update Autumn Statement 2016 Update on salary sacrifice arrangements The government will consider how the system could be made fairer between workers carrying out the same work under different pay arrangements and specifically how the taxation of benefits in kind ( BIK ) and expenses could be made fairer and more coherent. The government will take the following action: Salary sacrifice following consultation, the tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultra-low emission cars. This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of 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 BIK are valued for tax purposes, publishing a consultation on employer-provided living accommodation and a call for evidence on the valuation of all other BIK at the Budget 2017 Employee business expenses the government will publish a call for evidence at the Budget 2017 on the use of the income tax relief for employees business expenses, including those that are not reimbursed by their employer. HR update The Uber case - HM Revenue & Customs ( HMRC ) renewed attack on self-employed workers The November 2016 Uber tribunal ruling, resulting in Uber drivers being successful in their bid to be awarded employee rights, means it is more important than ever to ensure that employers have considered the employment status of their workers. 1
The ruling comes as HMRC announces the launch of a specialist unit to investigate companies who opt out of giving workers employment protection, by using agency workers or calling them self-employed. The same team will also police the recent change in the rules (IR35) on personal service companies used in the public sector. Incorrect classification can result in the employer or contractor being held accountable for any tax and/or National Insurance contributions ( NICs ) not deducted and paid (plus interest and penalties of up to 100% of the outstanding liabilities). Our experience suggests that many businesses believe that having a written contract in place is sufficient. However, it is important to note that employment status for tax purposes is not determined on the basis of any written contract alone. Both HMRC and the courts have been increasingly inclined to look beyond the contract to establish the reality of arrangements in place. Businesses that depend on a self-employed workforce (e.g. with the use of self-employed workers, consultants and personal service companies) should review their arrangements immediately, to ensure they are robust and can withstand scrutiny. This type of health check on worker arrangements should help identify areas of risk based on current HMRC reviews. There are many factors involved in deciding whether a worker is employed or self-employed. No precise definition exists and in some cases it can be a complex and difficult decision. Termination payments The following changes relating to termination payments will be applicable from April 2018: All payments relating to payments in lieu of notice ( PILON ) will be subject to tax and NIC deductions irrespective of whether or not the PILON is contractual Align the rules for tax and NICs so that employer NICs will be payable on payments above 30,000 (which are currently only subject to income tax) Make the following changes to the exemptions for termination payments: º º Remove foreign service relief º º Clarify that the exemption for injury does not apply in cases of injured feelings. This is because of divergent judicial decisions about this issue As an employer you should review your current policies and procedures in relation to termination payments. Gender paygap reporting Regulations are now in place meaning that by April 2018 employers will be compelled to publish data highlighting the gender pay gap within their organisation. This first report will cover the period to April 2017, and so data collection processes should be put in place now if they don t already exist. The gender pay gap is the difference between men and women s aggregate hourly pay and makes no allowance for the nature of the roles undertaken. Therefore, it is likely that an organisation with junior roles predominantly staffed by one gender and/or senior roles by the other gender will show a significant gender pay gap. The following changes will be introduced: The regulations will apply to employers who employ 250 or more employees Employers are required to publish the figures on the organisation s website and submit evidence of compliance annually to the government. The published figures must show both the mean and median gender pay gap. Employers will also need to calculate and publish three other figures alongside the gender pay gap. These are: º º Gender bonus gap º º Proportion of men and women receiving a bonus º º Proportion of men and women working at each quartile of the organisation s pay distribution. Although there are not expected to be financial penalties for non-conformance, the government has suggested that they will name and shame those who do not comply. Many employers are therefore considering now the explanatory text that they will publish alongside the statistical reporting. Non-contractual payments relating directly to the termination of the employment will continue to have the 30,000 income tax and employer s NICs exemption. There will continue to be an unlimited employee NICs exemption on termination payments. 2
Payrolling of benefits Frequently asked questions What is the issue? From April 2016 HMRC has introduced a voluntary framework to allow employers to payroll most BIK. Where benefits are payrolled under these arrangements, the benefits no longer need to be reported on the form P11D. However, the class 1A NIC still needs to be accounted via the P11D process in the normal manner. What benefits can be payrolled? Most BIKs can be payrolled. These include employer provided medical Insurance benefits and company cars. There are some benefits that cannot be payrolled and include: Credit cards and vouchers (can be payrolled from April 2017) Living accommodation Interest free and low interest (beneficial loans) What are the benefits of payrolling? The main advantages of payrolling employee benefits are: The employer does not need to also prepare form P11Ds for those benefits Reduction on employer administration Potential to help reduce some issues with employee coding of benefits Are there any disadvantages? You will still need to complete and submit the form P11D(b) to account for the class 1A NIC on the benefits that have been payrolled In the first year of payrolling, employees may have to pay tax for two lots of benefits in just one year. This could impact on their cashflow. For example, if you introduce payrolling of benefits for the year 2017-18, employees will pay tax on 2016-17 benefits, reported on the 2016-17 P11D, via their tax code and also pay tax on the current year (2017-18) benefits that have been payrolled The cost of training the payroll staff and any upgrades to the payroll software also need to be considered What do I need to do? Employers that want to payroll employee benefits under this voluntary arrangement must register online by 5 April prior to the beginning of the tax year, using the HMRC online Payrolling Benefits in Kind ( PBIK ) service. If the employer is not registered they can still payroll the benefits but will need to report on the form P11D as well, indicating the benefit has been payrolled. Abolition of P11D Dispensations Frequently asked questions What is the issue? P11D dispensation agreements have ceased and associated expenses and benefits legislation has changed from April 2016. What does it mean to me? Business expenses that are deductible by employees will become exempt if reimbursed by employers, subject to conditions. They will not be reportable by anyone and dispensations (reporting waivers) will be abolished. In the case of tax-deductible allowances, these and any other bespoke matters now included in dispensations, will need to be covered by new and separate agreements with HMRC (called approval notices). At the same time any reimbursement of travel, some other expenses and certain benefits in conjunction with salary sacrifice schemes, will become taxable. Employers will need a system in place to check that employees have incurred expenditure before they make a tax-exempt reimbursement by way of a scale rate payment. What checks do I need to be making? For the new exemptions to apply, employers will need to have a robust checking system in place to ensure that: Employees are in fact incurring and paying expenses of the kind reimbursed A tax deduction would be allowed in respect of those amounts and if not they are being picked up for inclusion on P11D The extent of checking undertaken by the employer will depend upon the scale of the business. They will need to demonstrate that someone other than the employee incurring the expense is responsible for ensuring that the payment: Relates to qualifying travel in the case of travel and subsistence expenses Does not include disallowable items Is not excessive 3
The form and regularity of the checks will depend on the following factors: The size and complexity of the workforce Uncertainty about whether employees will qualify for an exempt payment, e.g. where the temporary workplace rules apply for example. This should be more closely monitored. Unpredictable or non-standard work patterns, e.g. where scale rate payments have been agreed for irregular working, the employer may want to check that the agreed conditions are being met. The employer has no previous experience in the management of an expenses regime. Where the employer has not previously paid expenses HMRC may wish to insist on a larger or more regular sample check. There is evidence that the employer has failed to manage an expenses regime effectively in the past. Any other risk factors identified by HMRC. We recommend the following: Incorporate a review of the completion of the attendance records, diaries, work schedules etc. and supporting receipts obtained and retained by employees sufficient to satisfy HMRC. Be undertaken regularly during the year. This may be monthly, quarterly or half yearly depending on the number of factors present. What else do I need to be doing? There are several key steps that employers should take now: Review current dispensations to determine whether all the items will be covered by the new exemptions, in particular bespoke allowances or other unusual items such as the business element of chauffeurs or jets used by senior executives. Determine where new agreements with HMRC will be needed, and the steps required to obtain new approval notices where required. Consider sampling, internal processes and new expenses checking procedures. Consider how salary sacrifice arrangements will be affected and how you will exit from them with minimum disruption. Review and update expense policies, documents and provide additional training for employees or managers involved in reviewing claims. Review international aspects of your current policies, in particular positions taken on payroll, P11Ds and tax returns. Identify cases in which it is uncertain that an employee s expenses meet the conditions of the exemption. Take advice and/or discuss with HMRC how best to treat these. There is some uncertainty as to whether inclusion on P11Ds will be permitted, in any event this would come with a Class 1A NIC cost. Proposed changes PAYE settlement agreement ( PSA ) Blick Rothenberg has issued a response to the new HMRC consultation on simplifying the PSA process. PSAs are an annual agreement between HMRC and the employer, whereby the employer settles the tax and NIC, on a grossed up basis, on tax expenses and benefits which are minor, irregular or it would be difficult to apportion the cost to employees. A PSA detailing the items to be covered is agreed with HMRC on an annual basis by 6 July following the end of the tax year. The calculation of the tax and NIC due has to be agreed and paid to HMRC by 19 October (22 October if paying electronically) following the end of the tax year. Under the new proposals HMRC is: Removing the requirement to agree PSAs in advance Replacing the paper return with a digital return of the calculation of tax and NIC Aligning the dates for the submission of PSA and payment of tax and NIC with the P11D/P11D(b) deadlines of 6 July and 19 July respectively. Removing the minor criteria as it is felt that most items that fall within this category are now covered by the exemption relating to trivial benefits Providing greater clarity regarding the scope of irregular and impracticable benefits Payroll update The Apprenticeship Levy What is it? In April 2017 the way the government funds apprenticeships in England will change. Some employers will be required to contribute to a new apprenticeship levy, and there will be changes to the funding for apprenticeship training for all employers. Does it apply to me? The apprenticeship levy applies to all employers who operate in the UK, in any sector, with a pay bill of more than 3m each year. For the purposes of the levy, an employer is someone who is a secondary contributor, with liability to pay Class 1 secondary NICs for their employees. 4
How much do I pay The levy will be charged at a rate of 0.5% of your annual pay bill. You will have a levy allowance of 15,000 per year to offset against the levy you must pay. This means you will only pay the levy if your pay bill exceeds 3m in a given year. How do I pay it Employers will pay the levy to HMRC through the PAYE payroll process. If you have calculated that you will pay the apprenticeship levy, you will need to declare this and include it in your usual PAYE payment to HMRC by the 19 (or 22 if you report electronically) of the following month. The first submission in which you will declare that you will pay the levy will therefore be in May. Construction Industry Scheme ( CIS ) update HMRC announced in September this year that CIS contractors can now only verify their subcontractors online using HMRC s CIS online facilities. It is not possible anymore to call HMRC s CIS helpline in order to verify a CIS subcontractor. Pension/international update Pensions update - don t forget! In the Spring 2016 edition of the Employer Review newsletter, we explained the latest changes to the amount of UK tax relief that an individual receives for contributions to approved UK and overseas pension schemes. A tapered annual allowance was introduced from 6 April 2016. The annual allowance remains 40,000 for those with a total income of 150,000 or less. However, this reduces by 1 for every 2 of income above 150,000. For total income of 210,000 or more the allowance is 10,000. This Annual limit covers both an employee s personal contributions and any by the employer, and contributions to both UK and overseas pension schemes. An individual s pension arrangements are also subject to an upper lifetime limit, known as the Life Time Allowance. Previously as high as 1.8m, it has been systematically reduced since April 2012, and is now 1m since 6 April 2016. Important points for employers to now consider: What should the employer communicate to its employees? Employees need to understand how the new rules apply to them or they could face a large tax bill which could come as a surprise. Should the employer offer assistance in working out a three year contribution strategy? Any unused allowance from the three prior years will certainly help and might allow contributions to continue at the current level for up to three more years. However, the individual assessment and calculations can be complex. The changes also impact those working in the UK but who are members of foreign pension schemes. What happens if foreign rules require a foreign employer to contribute more than 10,000? We believe the excess is still taxable but are consulting with HMRC. How will employers deal with this? How do you identify affected employees? The pension threshold looks at total income, not just employment income. Will an employee want their employer to know their other income? Exploring alternatives to traditional pensions. The changes have been described as a negative downward spiral and in the future more radical changes to pensions are likely. The cumulative changes to pensions are eroding the long term appeal to employees. Therefore employers should consider if current arrangements are still appropriate and an alternative reward strategy, for example cash instead of excess pension contributions? To the extent that aggregate contributions exceed the annual allowance, employees will be denied UK tax relief on their excess contributions, plus pay UK income tax of up to 45% on the employer s excess contributions. Where more than the allowance is paid in a tax year, it is possible to bring forward any unused allowance for the three prior tax years to reduce or eliminate the excess but certain conditions need to be met. 5
Employer Solutions Payroll Benefits & Expenses Expat Reward Pensions Directors UK International Blick Rothenberg In an increasingly globalised world, businesses and individuals face a wide range of tax challenges and opportunities. Blick Rothenberg is a leading independent accountancy and tax firm that supports over 800 international businesses. Our specialist Employer Solutions team can help you and your employees manage tax, payroll, pension and policy issues and will work with you to find practical solutions to these complex areas. Blick Rothenberg was awarded the best International and Expatriate Tax Team at the 2015 Taxation Awards. Recognised as a mark of excellence within the sector, the awards were judged by a panel of leading professionals and officers of major tax institutions. We have also been highly commended by the Chartered Institute of Payroll Professionals ( CIPP ) as being a leading firm in the provision of international payroll services. For more information, please contact: Mark Abbs Partner +44 (0)20 7544 8744 mark.abbs@blickrothenberg.com 16 Great Queen Street Covent Garden London WC2B 5AH Tel: +44 (0)20 7486 0111 December 2016. Blick Rothenberg Limited. All rights reserved. While we have taken every care to ensure that the information in this publication is correct, it has been prepared for general information purposes only for clients and contacts of Blick Rothenberg and is not intended to amount to advice on which you should rely. Blick Rothenberg Audit LLP is authorised and regulated by the Financial Conduct Authority to carry on investment business and consumer credit related activity.