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The Government confirmed that various measures announced in Autumn Statement 2016 will be included in Finance Bill 2017
The changes announced in Autumn Statement 2016 related to:
A single consistent rule for making good on benefits in kind is a welcome change that will save time and administration costs for employers.
Changes to national insurance treatment of termination payments will increase employees’ and employers’ NIC costs. The changes may also create some complexity in determining what element of a non-contractual payment in lieu of notice will be regarded as basic pay for an employee who receives bonus/commission payments and non-cash benefits and therefore subject to tax and national insurance.
We hope that the final legislation will clarify how the proposed changes to salary sacrifice and optional remuneration arrangements for benefits not excluded from the changes will operate in practice.
Originally announced at Budget 2016 and confirmed at Autumn Statement 2016, the government will legislate in Finance Bill 2017 to reform the off-payroll rules
A public sector body, agency or a third party paying a PSC will be responsible for determining if the new rules will apply. Where the rules do apply, the fee payer will need to deduct tax and NIC (both employee and employer) from any payments made to the PSC and report to HMRC through RTI.
HMRC has only recently provided useful guidance on how these rules will apply in practice including ‘The Employment Status Service Tool’, which was released early March 2017.
With only a few weeks left before the change comes into force, it is imperative that those affected by the changes prepare now and ensure adequate systems are in place to deal with this increased compliance burden and additional cost, especially as the payments will be included in computing the payer’s Apprenticeship Levy. The changes will impact the PSC’s corporate tax computation as the off-payroll payments will be returned as employment income in the workers Self-Assessment Tax Return and not included as PSC income.
As announced at Autumn Statement 2016, the Government will legislate in Finance Bill 2017 to introduce a charge on certain loans, and widen the scope of disguised remuneration rules to self-employed workers.
The legislation in Finance Bill 2017 will subject any ‘disguised remuneration loans’, which were put in place on or after 6 April 1999 and are still outstanding at 5 April 2019, to a PAYE and NIC charge on the value of the loan outstanding at April 2019. Disguised remuneration loans are any loans which would have been regarded as employment income at the time they were advanced, had the disguised remuneration rules applied back then. The disguised remuneration rules have previously only applied where there has been an employee and employer relationship. The new legislation can now also apply to self-employed users of certain disguised remuneration schemes.
The introduction of the loan charge extends the disguised remuneration legislation even further than its current wide-reaching scope. The charge is a ‘dry’ tax charge as there are no payments, or indeed actions of any kind, required to be taken for the charge to arise. As such all taxpayers with these arrangements should review their position. In many cases taxpayers will need to make plans to source funds to either repay any outstanding loans, or the April 2019 tax charge if the loan is left outstanding. The extension of the disguised remuneration legislation to apply to self-employed workers could also create uncertainty for taxpayers.
Various commercial arrangements were subjected to unexpected tax charges when the initial disguised remuneration legislation for employees and employers was introduced, and there is a risk that similar problems will arise now for self-employed workers.
As announced at Autumn Statement 2016, the Government will publish a call for evidence to better understand the use of the income tax relief for employees’ expenses, including those that are not reimbursed by their employer.
The government will publish a call for evidence on 20 March 2017 relating to both reimbursed and non-reimbursed employee expenses. This appears to be part of a wider review by the government to make taxation of benefits in kind and expenses fairer between workers carrying out the same work under different contractual arrangements.
It is not clear if HMRC has concerns about claims employees are making or if the intention is to try and simplify matters. Employees who incur tax deductible expenses that are not reimbursed by their employer may claim relief via their self-assessment tax return or where there is no requirement to complete a return by way of a separate claim. Under the current system, many employees do not make a claim for relief due to the administrative burden involved or simply not understanding that they are entitled to make such a claim. Where claims are made, there may be limited evidence to support such claims, although HMRC may wish to review such evidence.
As announced at Autumn Statement 2016, the government will publish a consultation on employer-provided living accommodation
A consultation paper, to be published on 20 March 2017, will detail proposals to update the tax treatment of employer-provided living accommodation and board and lodgings. This will include a review of when accommodation should be exempt from tax and proposals to support taxpayers during any transition.
The OTS recommended a review of employer-provided living accommodation following a call for evidence in December 2015. The Government has agreed that this is a complicated benefit in kind, the taxable value of which could vary greatly depending on whether or not the employer owned the accommodation or rented it. The taxable value of employer owned accommodation is by reference to the property’s ‘rateable value’, which bears no reference to the property’s current value. It is most likely that the outcome of the consultation will increase the taxable benefit on these properties.
The review will also cover which employees should not be taxed on a property provided for the proper performance of their duties.
The true extent of the review including whether it will also consider property provided to employees working away from their normal place of work is not yet known.
As announced at Autumn Budget 2016, the government will publish a call for evidence on exemptions and the valuation methodology for the income tax and employer NICs treatment of benefits in kind.
The call for evidence, which will be published on 20 March 2017, seeks to enable the government to better understand whether the use of exemptions and valuation methodologies within the tax system can be made fairer and more consistent.
The Government appears to be moving towards a complete review of the taxation system of expenses and benefits for employees, with announcements for two calls for evidence (taxation of benefits in kind and employee expenses).
In an attempt to 'improve the clarity of the existing scheme', HMRC will publish guidance within the next three months on the treatment of image rights payments made to employees by employers.
Although the announcement was not accompanied with further detail, given recent HMRC submissions to MPs regarding the perceived abuse surrounding footballers’ use of image rights arrangements, the guidance is likely to represent a stiffening of HMRC’s position and could bring such payments under the ‘disguised remuneration’ rules. Nonetheless, we would expect HMRC to recognise the numerous examples of image rights arrangements which represent commercially driven business propositions.