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Personal and employment taxes

ICAEW Tax Faculty provides analysis of the announcements relating to personal and employment taxes in the 2018 Budget.

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Off-payroll working in the private sector

From April 2020, responsibility for operating the off-payroll working rules in the private sector will move from the individual worker to the organisation, agency or other third party engaging that worker through their personal service company (PSC). This follows a similar change, made in April 2017, when the government reformed the off-payroll working rules in the public sector, moving responsibility for determining whether the rules apply from the individual to the public sector body engaging the worker through their PSC.

This change will bring much of the private sector into line with the public sector off-payroll working system. The difference is that for the private sector, the new rules will apply only to those whose PSCs supply the workers’ services to end clients that are large and medium sized businesses. Where end clients are small private sector organisations, PSCs will continue to be responsible for applying the current IR35 rules.

There will be consultation on the detailed operation of the reform, which will be published in the coming months. This will inform the draft Finance Bill legislation, which is expected to be published in Summer 2019.

HMRC will provide support and guidance to medium and large organisations ahead of implementation.

This measure is not unexpected but, as we commented in our representations to the consultation earlier this year, ICAEW Rep 73/18 and ICAEW Rep 91/18, the practical problems with the public sector off-payrolling regime need to be resolved as a matter of priority.

Self-funded work-related training costs

The existing tax reliefs for work-related training costs for employees and the self-employed will not be extended. This follows consultation responses indicating that tax relief is unlikely to be effective in addressing barriers to learning or incentivising training. Instead, the government believes other policy interventions will be more effective in delivering support, such as the National Retraining Scheme and skills training pilots.

Short-term business visitors from overseas branches

Eligibility for the PAYE special arrangements for short-term business visitors will be widened and reporting and tax payment deadlines will be extended to 31 May, with effect from 6 April 2020. The PAYE special arrangement limit for UK workdays in the tax year will be extended from 30 days or less to 60 days or less. These measures are intended to help reduce administrative burdens on UK employers and follow consultation earlier this year. The Income Tax (Pay As You Earn) Regulations 2003 will be amended appropriately.

Expenses for unpaid office-holders

Primary legislation will enact the concession under which expenses paid or reimbursed to unpaid office-holders are exempt from income tax when incurred because of their voluntary duties. This will help provide certainty for organisations engaging unpaid office-holders. Corresponding legislation for NIC will be introduced to mirror the income tax exemption. The change will have effect on and after Royal Assent to FB 2019-20.

Van and car fuel benefit charges

The van benefit charge for 2019/20 will increase by the September 2018 CPI. The car and van fuel benefit charges will be increased by the September 2018 RPI.

This means that for 2019/20 the flat-rate van benefit charge will increase to £3,430, the multiplier for the car fuel benefit charge will increase to £24,100, and the flat-rate van fuel benefit charge will increase to £655.

Tax treatment of social security income

FB 2018-19 will include legislation to confirm the income tax treatment of nine new and existing social security benefits.

The following eight benefits are exempt from income tax:

  • Young Carer Grant, Best Start Grant, Funeral Expense Assistance and Discretionary Housing Payment (introduced by the Scottish government);
  • Discretionary Support Scheme (overseen by the Northern Ireland Executive); and
  • Council Tax Reduction Scheme, Discretionary Housing Payment and the Flexible Support Fund (overseen by the UK government).

The Carer’s Allowance Supplement in Scotland is subject to income tax.

The five new benefits being introduced in Scotland will be treated in accordance with the 2016 agreement between the Scottish government and the UK government on the Scottish government’s fiscal framework

NIC changes

As previously announced, class 2 NIC will not be abolished during this parliament, due to concerns about the impact on lower earners.

However, reforms to the NIC treatment of termination payments and income from sporting testimonials, which were in the draft National Insurance Contributions Bill published on 5 December 2016, will go ahead. They will take effect from April 2020.

Employment allowance

The employment allowance (EA) provides businesses with a reduction of up to £3,000 in their employer NIC. The EA will be restricted from April 2020 to employers with an employer NIC liability below £100,000 in their previous tax year. Where employers are connected under the EA rules the threshold will apply to their aggregated liability. These restrictions are designed to target the EA towards smaller businesses.

Apprenticeship training costs

The rate of the compulsory contribution that smaller businesses have to make toward the cost of training their apprentices will be halved from 10% to 5%.

Employers who do not pay the apprenticeship levy have to share the cost of training and assessing their apprentices with government – this is called ‘co-investment’. From May 2017 employers have had to pay 10% towards the cost of apprenticeship training and government has paid the balance (90%), up to the specific funding band maximum which applies to that particular apprenticeship. See official guidance on how apprenticeship funding works for non-levy paying employers.

This decrease to the co-investment rate is part of a package of reforms designed to strengthen the role of employers in the apprenticeship programme. Other changes include:

  • apprenticeship levy paying employers will be able to transfer up to 25% of their funds to pay for apprenticeship training in their supply chains;
  • the Institute for Apprenticeships and National Apprenticeship Service is being asked to identify gaps in the training provider market and increase the number of employer-designed apprenticeship standards available to employers. All new apprentices will start on these new courses from September 2020; and
  • government will work with a range of employers and providers to consider how they are responding to the apprenticeship levy across different sectors and regions in England.