The employment allowance, which reduces employer's national insurance contributions, will increase from £3,000 to £4,000 from April, saving businesses an extra £1,000. The Chancellor has announced a review of the enterprise management incentive scheme, looking at whether more companies should be able to access the scheme. He has also called for evidence on disguised remuneration schemes. Previously-announced changes to the loan charge and the off-payroll working rules will be introduced.
Review of changes to the off-payroll working rules (IR35)
The Government has responded to the recent review of changes to the implementation of the off-payroll working rules, and confirmed that the changes will be implemented on 6 April 2020.
At Budget 2018, the Government announced that it would reform the off-payroll working rules in the private sector from April 2020.
The reform shifts the responsibility for both assessing and communicating the employment status of a worker operating through an intermediary to medium and large clients. The aim of the reform is to ensure individuals who work like employees, but through their own personal service company (PSC), pay the same income tax and national insurance contributions (NIC) as individuals employed directly.
The Government has recently reviewed the proposed reform and concluded the off-payroll working rules will be extended to medium and large businesses in the private and third sectors from 6 April 2020, as originally planned.
However, the Government announced in its review that it is making a number of changes to support the successful implementation of the rules. These include:
- the rules apply to services provided from 6 April 2020 but not to payments made after this date that related to pre-6 April 2020 services;
- HMRC will take a lenient approach for the first 12 months and will not levy penalties for inaccuracies but businesses must be able to show that reasonable care has been taken;
- group determinations are permitted if terms for groups of workers are identical;
- HMRC will not use the new rules to open compliance checks into PSCs for tax years before 6 April 2020; and
- HMRC has published further guidance and promises additional support.
In addition, the Government will continue to monitor and evaluate the operation of the rules following implementation.
Prior to the review there was a lot of uncertainty and lack of guidance regarding the application of the rules. It will be disappointing for a number of companies that the off-payroll working rules will be implemented from 6 April 2020 and businesses will not be given more time to prepare.
In addition, following the review, there remain several uncertainties in respect of the application of the rules. For example:
- there is uncertainty surrounding the application of ‘employment status indicators’, particularly in respect of ‘mutuality of obligation’. The correct interpretation of mutuality of obligation is a matter of dispute, and HMRC’s position has been criticised. Recent case law has highlighted the importance of the mutuality of obligation indicator, however, HMRC’s CEST (Check Empoyment Status for Tax) tool will continue to disregard mutuality of obligation; and
- the Government review suggests that use of the CEST tool might not be sufficient to demonstrate reasonable care, which exposes businesses to risk of PAYE and NIC liabilities.
Although the lenient approach and additional guidance from HMRC is welcome, further sector specific guidance would be helpful to ensure businesses understand the changes to the legislation and contractors do not inadvertently pay more tax than is needed.
When will it apply?
From 6 April 2020
Response to the independent loan charge review
The Government will accept all but one of the recommendations from the recent independent loan charge review, including the refund of certain voluntary payments. Further action to tackle disguised remuneration schemes is planned.
A review of the loan charge was carried out in early 2020, and legislation to implement the recommendations of the loan charge was subsequently published. The key changes include:
- the loan charge will only apply to outstanding loans made between 9 December 2010 and 5 April 2019 inclusively (previously, it had applied to loans made since 6 April 1999);
- it will not apply to loans made in tax years before 2016-17 where a ‘reasonable disclosure’ was made and HMRC failed to take any action to recover the tax;
- a scheme will be set up to refund certain voluntary payments made on or after 16 March 2016;
- if the loan charge does apply, an election will be available to enable taxpayers to spread their payments over three consecutive tax years up to 2020-21;
- no interest will arise on Self Assessment liabilities for 2018/19 until 30 September 2020, provided that the tax return is filed and tax paid (or an arrangement is made with HMRC to do so) by 30 September 2020; and
- the deadline for reporting disguised remuneration loans has been extended from 1 October 2019 to 1 October 2020.
The Government remains firm in its aim of tackling disguised remuneration schemes. A call for evidence will be issued shortly to help address this type of tax avoidance.
These changes will be legislated in Finance Bill 2020, but they will have retrospective effect from 5 April 2019.
The loan charge is intended to tackle avoidance of income tax and national insurance contributions. Although the loan charge remains in force, the above recommendations narrow the scope of the charge and introduce measures to help taxpayers meet their liabilities by spreading the payment.
The Government’s acceptance of these recommendations will help ensure fair treatment for taxpayers who have already settled their liabilities voluntarily, as well as lessening the impact of the charge for those affected. This will be a welcome relief for those who would otherwise be subject to a tax charge on outstanding loans. It is, however, likely that this is not the end of the matter and we expect HMRC will pursue tax on outstanding loans by other means.
When will it apply?
This legislation will have effect retrospectively to 5 April 2019
Review of Enterprise Management Incentives
The Government will undertake a review of the Enterprise Management Incentives (EMI) scheme to ensure that it is achieving its objective of supporting employment in high-growth companies.
The EMI scheme is intended to offer generous tax reliefs to employees and allow high-growth companies to attract and retain a talented workforce. This is essential for businesses that are attempting to scale-up. The review will consider whether or not the EMI scheme is providing this support effectively, and if more companies should be able to access the scheme.
The announcement of a review suggests that the EMI scheme will continue to operate after the Brexit transition period, which is welcome news given that it is the most advantageous discretionary share option plan available in the UK.
Also welcome is the possible relaxation of the eligibility criteria, which could allow more companies to offer EMI schemes.
Extension in the scope of non-taxable 'welfare counselling' provided to employees.
The Government has extended the range of tax-free 'welfare counselling' benefits that can be provided to employees. This will apply to related medical treatments, such as cognitive behavioural therapy.
In certain circumstances, welfare counselling provided to employees can be exempt from tax.
Welfare counselling incorporates counselling of any kind, except for advice on finance, other than advice on debt problems, tax and legal advice and advice on leisure or recreation.
Until now, medical treatment has explicitly fallen outside the scope of tax-free welfare counselling. From 6 April 2020, medical treatment, such as cognitive behavioural therapy, will no longer be taxable when provided to employees as part of an employer's welfare counselling services.
Widening the scope of tax-free welfare counselling is very much in accordance with the Government's increased focus on mental health. We are pleased that this measure has been introduced.
When will it apply?
These benefits will be tax-exempt from 6 April 2020.
Construction Industry Scheme reforms to prevent abuse
The Construction Industry Scheme (CIS) will be simplified and new measures will be introduced to prevent abuse. This will include clarifying the definition of a 'contractor' and preventing businesses from claiming CIS refunds to which they are not entitled.
Currently, if sub-contractors have been paid under deduction in the CIS regime they are able to claim a refund from HMRC at the end of the tax year. Legislation will be included in the Finance Bill 2020/21 to deny these refunds where the deductions cannot be evidenced or a sub-contractor refuses to correct a CIS return.
The Government has also indicated that it will:
- simplify the rules for deemed contractors;
- clarify the rules around what is an allowable deduction for expenditure on materials; and
- expand the scope of the penalties for supplying false information when registering for CIS.
The focus of these reforms appears to be increased compliance with the CIS regime, both by discouraging abuse and clarifying the existing rules.
The extent to which the rules will be simplified for deemed contractors is not yet clear. Currently, a business may fall within the CIS regime even though its ordinary trade does not include construction operations. For these companies in particular, increased clarity and simplification of the rules will be welcome news.
When will it apply?
These changes will be legislated in Finance Bill 2020/21. The exact date they will take effect is not yet known.
Increases to the van benefit and van and car fuel benefit charges
The van benefit charge and the van and car fuel benefit charge will increase by inflation.
A new zero rate charge will be introduced for zero-emission vans from 6 April 2021.
As announced in a written ministerial statement in March 2020, the van benefit charge along with the van and car fuel benefit charges will be increased from 6 April 2020 by the September 2019 consumer prices index (CPI). As a result, the van benefit charge will rise to £3,490, the van fuel benefit charge will rise to £666 and the car fuel multiplier will rise to £24,500.
The Government has also announced that it will legislate for a zero benefit charge for vans that produce no carbon emissions, with effect from 6 April 2021.
The increase in van benefit and fuel benefits for both cars and vans by inflation is unlikely to prove controversial.
The announcement of a zero rate for vans that produce no emissions is in line with the Government’s wider environmental aims and will be welcomed by businesses.
When will it apply?
From 6 April 2020 and 6 April 2021
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.