UK employment tax update for 2017/18
Sarah Bradford explains what’s new for UK employers and employees at the start of the 2017/18 tax year, with important updates around payroll, company cars and the Apprenticeship Levy.
Change is something of a constant in taxation, and this has certainly been the case for employment taxes in recent years. Here we look at what’s new in the field of employment tax, relating to employers and employees, from April 2017.
Reporting expenses and benefits
From 6 April 2016 the benefits code applies in its entirety to all employees, regardless of their earnings rate (subject to a limited exemption for lower-paid ministers of religion); the £8,500 threshold and the concept of a ‘lower-paid employee’ were abolished from that date. These changes, together with the introduction of payrolling, change the year-end reporting landscape.
As far as the 2016/17 tax year is concerned, the P9D is no more and to the extent that benefits have not been payrolled, they must be reported to HMRC on form P11D no later than 6 July 2017. As a result of the extension of the benefits code, it may be employers have to report for the first time expenses and benefits provided to employees who were previously lower-paid. Employees should be given a copy of their P11D by the same date.
Benefits and expenses that fall within the scope of the statutory exemption for qualifying paid and reimbursed expenses (in s289A, Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)) that replaced the dispensation regime for 2016/17 onwards, or that are covered by other exemptions, do not have to be reported on the P11D.
Although payrolled benefits need not be included on the P11D, if the employer has opted to payroll some benefits but not others, a P11D is required to notify HMRC of the provision of the non-payrolled benefits. Employers who payroll all benefits will still have to file the class 1A NIC return, form P11D(b), by 6 July 2017. Both payrolled and non-payrolled benefits and expenses must be taken into account in calculating the class 1A charge, which for 2016/17 is due by 22 July 2017 where paid electronically and by 19 July 2017 otherwise.
For the 2016/17 tax year onwards, employers have been able to opt to deal with the tax on most benefits-in-kind through the payroll in a process known as payrolling – but only if they register with HMRC to do so before the start of the relevant tax years. As HMRC is unable to process applications to payroll in-year, employers who wish to payroll benefits in 2017/18 which were not payrolled in 2016/17 had to register by 5 April 2017 at the latest. Where benefits were payrolled for 2016/17, there is no need to register again for 2017/18 as the registration remains in place until cancelled. But, if an employer who has been payrolling no longer wishes to payroll benefits in 2017/18, it is necessary to opt out before the start of the 2017/18 tax year.
The payrolling net has been widened and for 2017/18 it will also be possible to opt to payroll non-cash vouchers and credit tokens (the Income Tax (PAYE As You Earn) (Amendment No. 3) Regulations 2016, SI 2016/1137, amending the PAYE Regulations, SI 2003/2682, regs 61A, 61B, 61D, 61G and 61I).
Company car information
Employers who payroll car and fuel benefits can submit details of the cars provided to employees via the Full Payment Submission from April 2017, rather than on form P46 (Car). The intention is that submission of information in this way will become compulsory from 6 April 2018, and HMRC is to consult on introducing regulations to provide for this. Guidance on sending car and fuel data to HMRC via the payroll from 6 April 2017 onwards can be found on the gov.uk website at tinyurl.com/TX-P46CAR
Form P9X(2017) sets out the tax code information for 2017/18, explaining which tax codes will change, how to change them and which codes to carry forward where a new coding has not been issued for an employee. Coding notices are available to view online. The emergency code for 2017/18 is 1150L.
Also starting in 2017/18, HMRC will amend tax codes in-year to take account of an employee’s circumstances as they change, rather than waiting until after the end of the tax year. This process will start from May 2017. Employers will receive a tax code notification once HMRC has updated the code. A copy will be also be sent to the employee. As a result, employers may have to process more frequent code changes and deal with more queries from employees.
Salary sacrifice schemes
The advantages historically associated with the use of salary sacrifice schemes are seriously curtailed from 6 April 2017. Under the new rules, where a benefit is provided by means of a salary sacrifice or flexible remuneration arrangement or where a cash alternative is offered instead, the benefit is valued for tax purposes as the higher of: the cash foregone or cash alternative offered; and the cash equivalent of the benefit calculated under normal rules.
This will mean that for most exempt benefits, the value of the exemption will be lost where provision is made via a salary sacrifice scheme. The new rules do not apply to: employer-provided pension savings (ss308–308A, ITEPA 2003); employer-provided pensions advice (s308C); childcare vouchers (s270A); workplace nurseries (s318A); directly-contracted childcare (s318); cycles and cyclists’ safety equipment provided under cycle to work schemes (s244); and ultra-low emission vehicles (ULEVs) emitting 75g CO2/km or less (s139).
Under transitional arrangements, where an arrangement is in place on 5 April 2017, the new rules will not apply until 6 April 2021 for cars (other than ULEVs), accommodation and school fees and from 6 April 2018 otherwise, or, if earlier, the date on which the contract ends, is modified or renewed.
The apprenticeship levy is introduced from 6 April 2017 and is set at 0.5% of an employer’s annual pay bill. However, as employers receive an annual allowance of £15,000 to set against the levy, it will only be payable by those employers with an annual pay bill of more than £3m. Guidance on calculating, reporting and paying the levy can be found on the government website.
Employer-arranged pensions adviceLegislation is to be included in the 2017 Finance Bill to introduce a new exemption from 6 April 2017, which will apply to the first £500 of pensions advice provided or paid for by the employer in a tax year. It will cover advice on pensions and general financial and tax advice in relation to pensions and will replace the existing exemption for pension advice of up to £150 per tax year.
Other tax changes for 2017/18
Also from April 2017, the rules on the benefit-in-kind charge where assets are made available to employees without transfer will be clarified to confirm that the tax charge will only arise for those days on which the asset is available for the employee’s private use. Legislation will be included in the 2017 Finance Bill to align the deadline for making good to 6 July after the end of the tax year for all benefits-in-kind. The new deadline will apply to benefits provided in 2017/18 and subsequent tax years.
|This article first appeared in the April 2017 edition of TAXline, under the title 'Employment Tax Update'.|
About the author
Sarah Bradford is director of Writetax Ltd, and is a freelance tax author and editor of Small Business Tax & Finance