Employment Tax
Main points
• Significant increases to the rates at which employers and employees pay National Insurance.
• Significant changes to the amounts on which employees pay tax on company car and fuel benefit and on which employers pay Class 1A National Insurance. The cost to employers is increased further by the increase in the rate of Class 1A National Insurance from 6 April 2011.
Other points
• HMRC is considering the policy and practicalities of allowing large connected employers to combine or pool their PAYE references, thereby reducing their administration time and costs.
• HMRC and the Department for Business, Innovation and Skills are to consult in the New Year on proposed changes to the National Minimum Wage Regulations to tackle the problem of arrangements commonly called “travel schemes”.
• Changes may be made to the rules relating to Enterprise Management Incentives (EMI) share option schemes to ensure that the European Commission approves the schemes for State Aid purposes.
• Restriction on the tax exemption for workplace canteens. This will only affect employees and employers who use the exemption in conjunction with salary sacrifice or flexible benefit arrangements. Such arrangements are intended to allow some employees to purchase canteen meals out of gross pay and hence obtain a significant tax advantage over the majority of employees who purchase meals using their net pay. The legislation will not affect general canteen subsidies that are available to all employees, for example where the employer provides a subsidy that is reflected in lower canteen prices. The legislation will take effect from 6 April 2011.
National Insurance Contributions (NIC) rates and thresholds
No major changes were made to the previously announced rates and thresholds for 2010/11 but the previously announced 0.5% increase in NIC from 2011/12 has been doubled to 1%.
The main rates of Class 1 and 4 NIC from 6 April 2011 will be 12% and 9% respectively, Class 1 employer rate 13.8% (including Class 1A and 1B), and the additional rate of Class 1 and Class 4 NIC, payable on earnings above the annual earnings limit, will be 2%.
The primary threshold and lower profits limit will be increased by an extra £570 for 2011/12 to compensate lower earners, meaning people earning £20,000 or less will be no worse off as a result of the 1% increase to the main rate of NIC.
Car and car fuel benefit
Company car drivers who are provided with cars which are wholly electrically propelled will not have to pay tax on the car and fuel benefit. This measure is to take effect from 6 April 2010 for a period of five years. The benefit will also be exempt from employer Class 1A National Insurance, resulting in savings for both employee and employer.
From 6 April 2010, the lower threshold (the CO2 emissions figure which sets the 15 per cent rate) for all other cars will be reduced from 135 to 130 g/km.
From 6 April 2011:
• there will no longer be any reductions for alternative fuels (hybrids, bi-fuels and cars manufactured to run on E85 – types H, B and G)
• the diesel surcharge will apply to all diesels (including type L diesels approved to Euro IV emissions limits and first registered before 1 January 2006)
• the £80,000 limit for the price of a car for car benefit purposes will no longer apply
• the lower threshold (the Co2 emissions figure which sets the 15 per cent rate) will be reduced from 130 to 125 g/km
From 6 April 2012 the current graduated table of company car tax bands will be extended down and all Co2 emissions thresholds moved down by 5g/km so that the 10 per cent band will apply to company cars with Co2 emissions up to 99g/km. Qualifying Low Emissions Cars (QUALECs) will therefore no longer exist as a separate category.
The effect of the above changes is that the car benefit figure, on which employees pay tax and employers pay Class 1A National Insurance, will increase year on year for most employees and employers over the next few years. The only way of reducing these increased costs appears to be by adopting an increasingly green fleet policy, which can take time and is not always practical. The costs for employers are further increased from 6 April 2011 by the increase in the rate of Class 1A National Insurance from 12.8% to 13.8%.
Company car drivers who are provided with fuel for private use will see a significant increase in the tax charge on the ‘benefit’ from 6 April 2010. The fuel multiplier on which the appropriate emissions based percentage is applied is to increase from £16,900 to £18,000. In many cases the tax cost of the ‘benefit’ may be more than the cost of the private fuel used and relinquishing the ‘benefit’ can result in substantial cost savings for both the employer and employee.
Employers will also see a significant increase in employer Class 1A National Insurance on car fuel benefit. The employer Class 1A National Insurance cost will also be increased further from 6 April 2011 by the increase in the rate from 12.8% to 13.8%.
Van and van fuel benefit
Company van drivers who are provided with electric vans will not have to pay tax on the van benefit. The van benefit legislation will be amended to include a definition of an electric van for this purpose. This measure is to take effect from 6 April 2010 for a period of five years. The benefit will also be exempt from employer Class 1A National Insurance, resulting in savings for both employee and employer.
With the exception of the exemption for electrically propelled vans, no change has been announced to the flat rate figure of £3,000 on which van benefit is charged.
The flat rate figure on which van fuel benefit is charged is to be increased from £500 to £550 from 6 April 2010.
PAYE Scheme Pooling
HMRC is considering the policy and practicalities of allowing large connected employers to combine or pool their PAYE references, thereby reducing their administration time and costs. HMRC has already carried out informal discussions about PAYE pooling with selected employers and representative bodies. Following on from this HMRC expects to publish draft PAYE Regulations for formal consultation early in 2010 in order to seek wider views and comments.
National Minimum Wage and “Travel Schemes”
HMRC and the Department for Business, Innovation and Skills are to consult in the New Year on proposed changes to the National Minimum Wage Regulations to tackle the problem of arrangements commonly called “travel schemes”. Travel schemes” take advantage of the tax and National Insurance expenses rules relating to travel to a temporary workplace. Where temporary workers paid through such arrangements are paid at or near the NMW, such arrangements are potentially exploitative as they can impact adversely workers’ entitlements to earnings related social security benefits.
Enterprise Management share option schemes
Changes may be made to the rules relating to Enterprise Management Incentives (EMI) share option schemes to ensure that the European Commission approves the schemes for State Aid purposes.
Restriction on the tax exemption for workplace canteens
This will only affect employees and employers who use the exemption in conjunction with salary sacrifice or flexible benefit arrangements. Such arrangements are intended to allow some employees to purchase canteen meals out of gross pay and hence obtain a significant tax advantage over the majority of employees who purchase meals using their net pay. The legislation will not affect general canteen subsidies that are available to all employees, for example where the employer provides a subsidy that is reflected in lower canteen prices. The legislation will take effect from 6 April 2011.
Bank Payroll Tax
A new Bank Payroll Tax (BPT) of 50% is to be introduced, payable by the bank, on bonuses over £25,000 paid to employees. The bank is also liable where an intermediary provides the bonus. The tax is effective immediately until 5 April 2010, for all discretionary and contractual bonus awards, with an exception for contractual obligations already existing.
For the purposes of BPT, banking employment is one where the duties are wholly or mainly concerned with activities regulated by the Financial Services and Markets Act 2000.
BPT is payable 31 August 2010.
