In my previous article, I began my roundup with the outcome from the Scottish budget, which revealed the intention of having a different higher rate threshold of £43,430 for the 2017-2018 tax year compared to that for the rest of the U.K. (rUK), which will be £45,000.
Shortly after that announcement came the news that contrary to its budget report, the Scottish Parliament had voted to freeze the basic rate of income tax of 20% and also to freeze the higher and additional rates at 40% and 45%, respectively. They also voted to maintain the higher rate of income tax threshold at £43,000 for 2017/2018.
U.K. Spring Budget
In the meantime, the U.K. Spring Budget went ahead as planned on 8 March. It opened with a quip from the Chancellor about how he hadn’t been the first to state his intention to deliver the “last Spring Budget.”
Quips from the Chancellor of the Exchequer were probably in greater volume than was information or proposals for future pay-related policy change. In fact, it was a very quiet budget when viewed from a payroll perspective. Our joy was tempered slightly, however, with the knowledge of the changes already planned for implementation from 6 April and the fact there would be another budget later in the year.
From a CIPP policy team perspective, we were particularly interested in the mention of future consultation work.
Future Change
Several payroll-and reward-relevant consultations were mentioned within the Spring Budget report, including tackling Disguised Remuneration avoidance schemes, employer-provided accommodation, and Digital Tax Administration (otherwise referred to as Making Tax Digital). There were also Calls for Evidence planned on taxation of employee business expenses and taxation of benefits in kind.
Taxation of Employee Expenses Call for Evidence
There were no real surprises with any of these details. Since then, the Call for Evidence on the taxation of employee business expenses has been published and plans to run until 12 June.
This Call for Evidence helps the government better understand the use of existing tax reliefs on employee expenses as the direct cost to the exchequer, where employees claim tax relief on expenses that have not been reimbursed by the employer. This currently stands at £800 million a year, and the amount reflects a 25% increase in claims between 2009-2010 and 2014-2015. The government wants to understand why this increase has occurred, particularly where employees choose to use an agent to submit their claims, rather than submit the claims directly to HMRC.
In particular, the Government wants to gather evidence to better understand:
- If the current rules or administration can be made more clear and simple— research carried out by the Office of Tax Simplification (OTS) suggests they can
- Whether tax rules for expenses are fit for purpose in our modern economy— much has changed since the current tax rules were first introduced in the mid-19th century, and working practices have seen a shift away from manufacturing toward the service sector. OTS research had resulted in a call for general principles to be reestablished to ensure they were in line with modern practice
- Why the cost to the exchequer for direct claims by employees, particularly through the services of an agent, has increased to ensure that the reliefs are being used as intended
Evidence is being invited from employers and employees under three main areas:
- Current employer practices on employee expenses
- Current tax rules on employee expenses
- The future of employee expenses
The government has stated that it has no plans to remove the relief that is available on employee expenses. However, we have seen from earlier consultations that the cost of relief is increasingly being balanced against the concept of “fairness to society.” We also know from past experience that proposals from such Calls for Evidence will result in change—and that is where the real work for us will begin.
U.K. Policy Team Needs Your Help
While it is likely the Call for Evidence will have closed by the time you read this article, HM Treasury is keen to gather quantitative as well as qualitative evidence from those dealing with U.K. employees.
If you feel you can provide that to support or respond to any of the 17 questions in the paper, then the team leading this work will want to hear from you. Contact us by email.
It will be interesting to see what proposals come forward from this work in a future consultation.
PSA Calculations
HMRC currently checks every PSA calculation for errors and anomalies before employers pay their PSA liability. These checks ensure the items returned in the PSA calculation match those agreed upon in the PSA agreement. Once the PSA calculations have been checked and the value agreed upon, employers have until 19 (22) October (depending on the method of payment) following the relevant tax year to settle their PSA liability, which includes paying Class 1B NICs.
Removing the process of checking the calculation can significantly reduce the administrative burden. This presents an opportunity to review the payment deadlines for PSAs, with a view to aligning the payment date of PSAs with other deadlines that exist for reporting of BiKs, i.e., 6 July.
Impact of Off-payroll on Student Loan Collection
From 6 April, a new responsibility has been placed on:
- Public authorities that hire off-payroll contractors
- Agencies and third parties that supply contractors to the public sector
- Contractors who provide their services to a public authority through an intermediary
The new rules, which will see the responsibility for assessing whether a contract for services is caught by Intermediaries legislation (IR35), pass from the contractor providing the services to the public sector engager.
HM Revenue & Customs (HMRC)has designed a new digital tool to aid public sector engagers, agencies, and contractors when making this decision.
The new regime will impact all payments made from 6 April, regardless of whether the work was completed before then.
Where it is deemed that an engagement is caught by the rules, the fee payer will become the employer for the purposes of collecting income tax and class 1 National Insurance contributions (NIC). The payment will be processed for income tax and NIC deductions using the payroll system, and details of the worker will be submitted to HMRC using the Full Payment Submission (FPS).
In the meantime, in another part of HMRC, processes continue regarding the collection of student loan repayments.
Contractors caught under IR35 are responsible for accounting for their student loan repayments when they submit their annual Self-Assessment (SA) return, and it is via SA that they account annually for repayment on their earnings (where applicable).
HMRC systems currently have no way of recognising where an individual who is detailed on the FPS is an employee or a worker caught by IR35. As such, where their details are matched within HMRC systems as being an SL “borrower,” a form SL1 will be issued to the fee payer to initiate a start of student loan repayment, where earnings exceed the threshold.
If a fee payer receives an automated SL1 for a worker who is being taxed under the new regime, it is being asked by HMRC to ignore this notice and to not begin to deduct student loan repayments from the worker’s fees. The fee payer is also being asked where student loan deductions have already been deducted, to stop from the next available pay date.
This is not something that an automated payroll system will easily adapt to,so affected “employers” will need to build in to their processes, where possible, a method to prevent these repayments from starting. In the event that they can’t, the payment will be credited against the worker’s student loan company account. Meanwhile the worker should continue to account for student loan repayments via their Self-Assessment Tax Return. Where an SL1 has been issued, and the public authority (or the agency serving the authority) has been able to prevent deductions being made, they will begin to receive reminder emails from HMRC via the Generic Notification Service (GNS), which serves as a prompt for employers to begin making deductions for student loans where none are being reported on the FPS.
This process, which began in April 2016, includes a first reminder. If no action is returned via the next FPS, a second email prompt is issued, which is followed by a telephone call to enquire why no action has been taken. HMRC, which is unable to identify a worker, as opposed to an employee from the FPS, is unable to switch off this service for the 2017-18 tax year.
And so, it would appear that for a year that will showcase two budgets—the final Spring Budget and the first (for a while at least) Autumn Budget—it is very much business as usual. We can only hope (and lobby for) that the new timetable for such a major fiscal event will also bring with it ample time needed to implement new processes and system changes as a result of a change to tax policy—not only for external stakeholders, such as employers, payroll bureaux, tax agents, and essential payroll software developers, but also for HMRC.