Employee taxes

Perhaps one of the biggest headline changes announced in the Budget was the increase in the rate of Class 4 National Insurance contributions (NICs). This will impact the self-employed and may lead to questions from some contractors on the benefits of self-employment vs direct employment.  More in depth commentary is provided…

New legislation FA 2017

International workers/pensions

A change has been announced to Qualifying Recognised Overseas Pension Schemes (QROPS). These are pension schemes set up outside the UK enabling people retiring outside the UK, to take their pension arrangements out of the UK. The schemes are complex and exact details can depend upon the country in which the pension is established. The rules were introduced in response to EU human rights requirements around freedom of capital.

An exit charge of 25% will in future be levied on these transfers unless a number of conditions are met, in particular the pensioner and the fund must either both be within the EEA or in the same country if outside the EEA. QROPS are often established in offshore jurisdictions such as the Isle of Man and Channel Islands that may not be members of the EEA.

Legislation confirmed on previously announced measures

There were a number of changes in pipeline from last year’s Budget and Autumn Statement that the Spring 2017 Budget has confirmed will come to fruition with legislation in this year’s Finance Bill.  These changes will include:

  • Legislation to reform ‘Off payroll’ working in the public sector will be introduced to put the onus onto the public body for compliance and deduction of tax and National Insurance in these situations.
  • new legislation aligning the tax and National Insurance on termination payments;
  • changes to salary sacrifice arrangements to remove any tax and NIC advantages (with some exceptions that include pension contributions, child care vouchers, bike to work and very low emission vehicles);
  • Changes to the date by which employees must ‘make good’ to avoid certain benefit in kind charges; and
  • Further legislation cracking down on ‘disguised remuneration’ avoidance.

Image Rights – HMRC guidance to be published

The Spring 2017 Budget has announced HMRC will publish guidelines in spring 2017 for employers who make payments for image rights to their employees. 

This is often associated with footballers and other sports stars. The key has been to ensure that the transactions are undertaken on a commercial basis.  HMRC have been looking at many of these arrangements closely and whilst the clarity is welcomed there will no doubt be a number of structures that need to be reviewed in light of this new guidance .

Employee Taxes – Future changes and Consultations

Employee Expenses

A call for evidence will be published on 20 March 2017 to gather information on the use of income tax reliefs on employee expenses (particularly those not reimbursed by an employer). 

Taxation of benefits in kind

The Government will publish a call for evidence on 20 March 2017 on exemptions and valuation methodology for the Income Tax and employer NICs treatment of benefits in kind.

Employer-provided accommodation

A consultation paper will be published on 20 March 2017 with proposals to bring the tax treatment of employer-provided living accommodation and board and lodgings up to date. This could impact hotel staff, live in staff, clergy and some of those on international assignments.

Removing NICs from the effects of Limitation Act

The Government will remove NICs from the effects of the Limitation Act 1980 and will align the time limits for the recovery of NICs debts with those for tax. To allow more time for a full consultation on the draft legislation, the Government will be deferring this and will introduce the measure in a future NICs Bill.

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