The consultations you need to know about over the next few months
New double tax agreement signed by the UK and the United Arab Emirates
There are thousands of UK businesses operating in the United Arab Emirates (UAE) and over 100,000 British nationals living and working there and yet there has been no double tax agreement (DTA) between the UK and the UEA in place to date.
The DTA will come into force following the completion of legal formalities in each state and will take effect on 1 January following the year in which it comes into force; this could be as early as 1 January 2017.
A key point for employers is that the DTA will end the requirement for them to account for PAYE where internationally mobile employees resident in the UAE work in the UK for short periods if certain conditions are satisfied.
The Scottish government is consulting on apprenticeship levy funding
As apprenticeship policy is a fully devolved matter, the Scottish government is seeking views about how the funding from the apprenticeship levy that will be passed to Scotland should be used.
In response to feedback from employers, the scope of the consultation goes beyond apprenticeships to consider support for workforce development outside of the apprenticeship programme, especially for employees aged 25 and over. The consultation asks in addition how levy funding should be used to support various types of apprenticeship programmes.
The consultation notes a concern expressed by some employers that they will not be able to offer sufficient apprenticeships to recover their levy contribution, but notes that these employers see a benefit in non-levy paying employers in their supply chain receiving funding.
The consultation closed on 26 August 2016.
The Welsh government is uncertain how levy funding will reach Wales
As apprenticeship policy is a fully devolved matter, the Welsh government will decide how it wishes the funding to be made available to employers.
However, it is uncertain at present about how it will receive its fair share of the levy funding and whether or not corresponding reductions will be made to funding received for the skills budget, meaning that there is no net increase in funding available for employers.
The document also notes that all the devolved administrations are working with the UK Government on a number of matters related to funding and access to apprenticeships that impact on employers with operations across the UK.
Most salary sacrifice benefits are set to become taxable
It is possible at present to provide most non-taxable benefits under a salary sacrifice arrangement. This is often part of a flexible benefits scheme designed to give employees choice. These arrangements save the employee tax and NIC and save the employer NIC.
Following a number of statements from the government about its concern that this is costing the Exchequer too much, HMRC issued a consultation document on 10 August 2016 concerning a proposal to charge income tax and Class 1A NIC from 6 April 2017 on most benefits provided through salary sacrifice arrangements.
Benefits provided under flexible benefits schemes where there are no salary sacrifice arrangements will not be affected.
The consultation closes on 19 October 2016.
The tax and NIC treatment of termination awards is set to change
The current rules for termination awards allow up to £30,000 to be given tax free as long as the awards are not already taxable as employment income (with certain awards being exempt from tax).
There is no NIC liability in such cases on any part of the award, even if this exceeds £30,000. In addition, non-contractual pay in lieu of notice (PILON) and compensation for lost benefits fall within these rules.
A consultation document issued by HMRC on 10 August 2016 proposed that from 6 April 2018, under lengthy and complex legislation:
- all PILON and payments to compensate employees for amounts lost where the employee is not permitted to work for the full notice period will be subject to tax and employee's and employer's Class 1 NIC without any exemption
- employer's NIC will be charged on termination payments that are not otherwise subject to NIC where the payment exceeds £30,000
- payments in respect of injury to feelings will be excluded from the exemption in cases of disability (at present, there are some conflicting judicial decisions about whether this falls within the exemption)
- the current exemption for payments made in certain cases of foreign service will be removed (except for seafarers).
The consultation closes on 19 October 2016.
The PAYE Settlement Agreement process may change for better and worse
Stated briefly, employers can agree a PAYE Settlement Agreement (PSA) with HMRC each year to cover a number of benefits that are minor or irregular or where the operation of PAYE or P11D reporting is not practical.
The tax has to be grossed up and Class 1B NIC is payable on the total of the benefit and the tax. Calculations have to be sent to HMRC some months after the end of the tax year, with the liability being settled by 19 or 22 October.
A consultation document issued by HMRC on 9 August 2016 proposes that:
- employers will no longer have to agree a PSA with HMRC each year
- the category of minor benefits is removed
- the definitions of irregular items and cases where payrolling or inclusion on P11Ds is not practical are tightened
Consideration was also given to:
- digitising the PSA process
- bringing forward the submission of the calculation to 6 July following the tax year and the payment to 19 or 22 July
- a warning system being introduced to alert employers to mistakes made in good faith in PSAs
- capping the amount that can be included in a PSA for office holders who control companies
HMRC has decided not to extend the scope of items that can be included in PSAs.
The consultation closes on 18 October 2016.
Further benefits in kind can be payrolled voluntarily from 6 April 2017
The voluntary payrolling of benefits was introduced from 6 April 2016. Employers were able to apply to HMRC before that date to payroll benefits in kind other than:
- living accommodation
- beneficial loans
- non-cash vouchers (such as retail vouchers) and credit tokens (such as credit, debit and store cards).
Under draft legislation published by HMRC on 9 August 2016 it will be possible to payroll non-cash vouchers and credit tokens from 6 April 2017.
Apprenticeship funding proposals for England published
There are two key parts to the government's initiative to see the creation of three million new apprenticeships over the course of this parliament:
- The imposition of a UK-wide apprenticeship levy on certain employers from 6 April 2017
- Using the proceeds from the levy to make funding available to all employers for training apprentices
As training is a devolved policy, each devolved administration will decide how funding will be made available. The Department for Education published its proposals for England on 12 August 2016. The main proposals are:
- for the purposes of any government funding there will be 15 funding bands with upper limits ranging from £1,500 to £27,000
- where an employer has to pay part of the training cost under the co-investment model, the government will fund 90% of the cost up to the limit of the appropriate funding band
- levy-paying employers can transfer up to 10% of the annual value of funds entering their digital accounts to other employers on the digital system from 2018
- 20% of the total training cost will be held back in digital accounts and paid out at the end of the apprenticeship.
The government will fund the training of 16 to 18 year olds as follows:
- 100% of the cost of training up to the limit of the appropriate funding band where an employer employs less than 50 people
- An additional payment of £1,000 to employers and a further £1,000 payment to training providers in other cases
Employers can use funds in their digital account and benefit from co-investment to pay for training apprentices:
- whose main place of work is in England whether they live in England or other parts of the UK
- where they acquire substantive new skills and the content of the training is materially different from any prior training or a previous apprenticeship
Employers can give their views on the proposals by completing an online survey by 5 September 2016.
Proposed changes to the dates by which employees can pay for benefits tax efficiently
When employees are provided with a taxable benefit, they can reduce or remove the tax charge by making a payment for the benefit. This reduces the employer's NIC charge as well. There are a number of deadlines by which this can be done, depending on the benefit provided.
HMRC is proposing to align these dates following a recommendation by the Office of Tax Simplification:
- for benefits other than car and van fuel – by the end of the tax year in which the benefit is provided
- for car and van fuel where the employer provides the vehicle – by 1 June following the tax year in which the benefit is provided.
This will bring the dates in line with the PAYE rules where benefits are payrolled.
The consultation ends on 4 October 2016.
The Treasury is consulting on the medium-term taxation of "green" company cars
A percentage of a car's list price, based on its CO2 emissions, has been treated as the taxable benefit since 2002 to encourage the manufacture and use of green cars. In particular, a zero percentage band was introduced in 2010/11 for cars producing no CO2 and a 5% band where CO2 emissions were 1-75 grams a kilometre (g/km).
Seemingly contrary to the stated aim of encouraging green cars – only 1% of company cars currently emit below 75 g/km – these bands were changed from 2015/16, with a 5% band for 0-50 g/km and a 9% band for 51-75 g/km. These rates will increase gradually to 16% and 19% by 2019/20.
The government is consulting on how to encourage the use of green cars from 2020/21. The document notes that a number of hybrid cars have very low CO2 emissions, but the range that they can travel electrically varies considerably. The document suggests a refinement of the current banding of green cars to further encourage development and has suggested sub-bandings within the CO2 bandings based on the number of miles that can be covered electrically.
There could be many bandings introduced or a few; the government sees some merits and disadvantages in both. The document implies in passing that green cars might be defined in the future as emitting below 50 g/km. This would almost certainly see a steep increase in the tax benefit of cars falling in the 50-75 g/km banding.
The consultation closes on 19 October 2016.
Advisory Fuel Rates from 1 September 2016
HMRC announces Advisory Fuel Rates every three months and has just published the rates that apply from 1 September 2016.
The Advisory Fuel Rates, which can be used only for employer-provided cars, are accepted without question by HMRC as achieving the following objectives:
- Reimbursing company car drivers who provide their own car fuel for business journeys without giving rise to a profit
- Enabling company car drivers who are provided with fuel for private journeys to make good the cost of that fuel to their employer to avoid the fuel benefit charge
Employers can use the previous rates for up to a month from the date the new rates apply.