jcca.co.uk

January 2017

Employer Matters Newsletter

jcca.co.uk

jcca.co.uk

We hope you all enjoyed a decent break over the festive period. It’s safe to say that 2016 was an economically and politically turbulent year across the globe, and as the dust settles, we are all wondering what 2017 will bring. One thing’s for sure, more political and socio-economic change is on the horizon, and we’re here to help ensure you’re well prepared for whatever the future may hold.

In this newsletter, we provide an overview of the recent Autumn Statement and Scottish Budget announcements, detailing the changes that will impact on you. We also look at the new rules around salary sacrifice/salary exchange, changes in the treatment to benefits in kind and the introduction of the new apprenticeship levy.

We are also keen to hear about the challenges you face as an employer. We’ve included a very brief survey question asking you to share your top 5 employer challenges, and hope you’ll take a moment to tell us your views.

As always, we’re here to help. If you’d like to know more about the issues discussed in this newsletter, please don’t hesitate to contact us.

Welcome to the New Year edition of our Employer Matters Newsletter

Contents

3 Autumn statement/Scottish budget – What you need to know…4 Salary sacrifice/Salary exchange – The new rules…5 Apprenticeship levy – The new stealth tax?6 Government consultation documents – What’s in store for the future?7 Benefits in kind – Key changes to be aware of8 Scottish income tax changes – What are the implications?9 Stop press - New charges for employing foreign workers9 Have your say – What are your top 5 employer challenges?10 Contact us

3 Employer Matters jcca.co.uk

Autumn statement/Scottish budget – what you need to know…

His proposal to abolish salary sacrifice arrangements may panic many, but in reality, will only impact a small percentage of the workforce, with the more common salary sacrifice schemes such as pension contributions, child care vouchers and cycle to work remaining protected.

One big change was Hammond’s decision to reverse the tax benefits applicable to the Employee Share Scheme policy. Introduced in 2013, this policy aimed to incentivise employees to take up shares in their employer in exchange for waiving certain employment rights. However, it’s the Chancellor’s view that such schemes are being used for tax avoidance purposes and he has therefore revoked the income and capital gains tax benefits from 1st December 2016.

SNP flex their fiscal powers

In December we also heard Scottish Finance Secretary Derek Mackay make his first Budget statement. In keeping with the strategies laid out in the SNP manifesto, he announced his plan to maintain the higher rate income tax threshold of £43,430 for 2017/18, whereas in the rest of the UK,

this will rise to £45,000. Those fully affected will pay £314 more in income tax than taxpayers in other parts of the UK.

A new apprenticeship levy

The UK Government will press ahead with plans to fund apprenticeships via the introduction of a 0.5% levy on an employer’s wage costs in excess of £3 million per year from April 2017. Accordingly, the levy will only apply to UK employers with annual salary levels of more than £3 million, which means an estimated 2% of employers. Businesses should be aware that the levy will apply across all sectors, regardless of whether their organisation engages apprentices.

Details were also announced in the draft Budget about how proceeds from the levy will be applied, including for the expansion of Modern Apprenticeship opportunities to 30,000 new starts each year by 2020, alongside an increase in the number of graduate level and foundation apprenticeships during 2017/18.

More information on the levy is provided in our dedicated article further below.

On 23rd November 2016, Chancellor Philip Hammond delivered his inaugural Autumn statement, focusing mainly on light touch tax policies.

4 Employer Matters jcca.co.uk

Salary sacrifice/Salary exchange – The new rules…

You will be affected if you provide benefits to your employees:• in exchange for salary sacrifice / salary

exchange or,• have a flexible benefits package where your

employee can choose a benefit or cash or,• where you provide benefits but offer your

employee a cash alternative

Benefits impacted are those which are currently taxable, like cars and white goods, and those currently tax exempt, like mobile phones and workplace parking.

The taxable value of the benefit will be the higher of the current value or the cash foregone. This will be the value you use for calculating Income Tax and Class 1A National Insurance Contributions (NICs).

What do I need to do?

If you are using salary sacrifice with your employees you need to familiarise yourself with the new rules.

You don’t need to do anything if your employees are sacrificing salary only for pensions, pensions advice, childcare vouchers, workplace nurseries, directly employer contracted childcare, cycle to

work or cars with emissions of or under 75 g CO2 / km.

If your employees are sacrificing salary for anything else, you need to use the new rules.

When do I have to do this?

The new rules do not start until 6 April 2017. Salary sacrifice contracts entered into on or before 5 April 2017 will be protected up until the contract hits a trigger point.

What is a trigger point?

From 6 April 2017, the normal trigger point is when the salary sacrifice contract renews, auto-renews, starts, ends or is modified or changed. At this point you must use the new rules.

However, if the existing contract is still in place on 6 April 2017, there will automatically be a trigger point on 6 April 2018 (this will be 6 April 2021 for cars with emissions over 75g CO2/km, accommodation benefit and school fees).

** If an employee starts a contract on or after 6 April 2017, you will need to immediately use the new rules for that employee. This will apply to new recruits.

New rules are being introduced from 6 April 2017 for Benefits in Kind (BiKs) where they are provided by salary sacrifice.

5 Employer Matters jcca.co.uk

What is it?

As previously announced, the Government is introducing the new Apprenticeship Levy from 6 April 2017, intended to fund a programme of modern apprenticeships. This new charge is aimed at larger employers, specifically those with payroll costs exceeding £3 million. Other factors, such as turnover or the size of a company’s Balance Sheet do not have any bearing – it is purely based on earnings subject to employer’s Class 1 National Insurance contributions. This will mainly be salary payments, but could also potentially include bonus, commission or taxable expenses payments.

What will it mean?

The new levy is 0.5% of salary costs above £3 million and will be reported as an Employer Payment Summary (EPS) submission. Therefore, a business with salary costs totalling £13,000,000 will see a £50,000 hit to their profits from

April 2017. No deduction for any industry specific levies such as the Construction Industry Training Board Levy is available, as the new Apprenticeship Levy applies equally to all employers.

What if I don’t employ an apprentice?

Those businesses with payroll costs over £3 million who do not employ apprentices may think that the Apprenticeship Levy will not apply to their business. However, this is not the case! The levy will be applied regardless of whether the business employs apprentices or not.

However, special rules apply in the case of connected companies and charities. In this case, the £3 million threshold is divided between all companies and charities which are linked for Employment Allowance purposes.

Who has control?

Whilst this is a UK wide levy, the spending of the funds

raised is largely a matter for the devolved administrations in Scotland, Wales and Northern Ireland. To the extent that an Apprenticeship Levy for your organisation relates to employees resident in England, funds will be credited to a digital online account that can be drawn on to fund apprenticeships (in England) within your organisation.

No such facilities have been announced for Scottish based apprenticeships as yet, and the detail on how the Scottish Government intends to use the funding remains to be seen. However, relevant business may wish to start considering how they might be able to capitalise on the potential funding opportunities.

Don’t get caught out by the new changes which are coming into effect from April 2017. If you need some advice, please get in touch with our Employer Solutions team who would be pleased to help.

Apprenticeship levy -

The new stealth tax?

6 Employer Matters jcca.co.uk

Government consultation documents – What’s in store for the future?

We are almost a year into the last round of changes brought about by the Office of Tax Simplification (OTS) – all coming into play as of 6 April 2016 – which brought about significant changes in relation to voluntary payrolling of benefits, abolition of dispensations/introduction of statutory expenses exemption, abolition of the £8,500 earnings for P11D reporting purposes and statutory clarification of trivial benefits exemption.

The next set of changes are set to be brought about by the Finance Bill 2017 – having been outlined in the recent Autumn Statement. The changes made in relation to salary sacrifice are outlined separately in this newsletter.

Several proposals remain in the consultation pipeline and we’ve outlined the ones we think employers should keep an eye on:

Simplifying the PAYE Settlement Agreement (PSA) Process

PSAs are intended to ease administrative burden on employers and constitute a statutory agreement between them and HMRC to settle income tax and national insurance liabilities arising on certain benefits-in-kind (most commonly staff gifts and entertaining, in addition to other typically minor benefits-in-kind).

The OTS recommended a streamlining of the process and specifically called for the removal of the requirement to agree in advance what items may be included each year.

HMRC are likely to develop their guidance as to what can be included within a PSA, looking to remove the requirement for an annual/specified agreement whilst reviewing the possibility of digitalising the whole process. They are not planning, at least currently, to extend the scope of

suitable items for inclusion in a PSA or align the PSA payment date with that of Class 1A National Insurance Contributions (NICs). Find out more here.

Alignment of dates for ‘Making-Good’ on Benefits-in-Kind

This refers to where an employee gives a cash payment to the employer in return for the provision of a benefit-in-kind, having the effect of reducing the cash equivalent of that benefit-in-kind (often to nil). This most commonly occurs in relation to the employer provision of fuel for company cars and/or vans and the employee reimburses a private mileage element to avoid the imposition of a fuel benefit-in-kind. Thankfully, HMRC appreciate the difficulties involved in accounting for NICs in such instances within the corresponding earning period, and a uniform date of 6 July following the end of the tax year gives a clear and consistent date by which making good can take place without undue inconvenience for employers. This change is to be implemented in the Finance Bill 2017. The Government’s consultation document can be viewed here.

Employment Allowance: Technical Consultation on Excluding Employers of ‘Illegal Workers’

HMRC propose to exclude certain employers from claiming the Employment Allowance (currently £3,000) for one year where the employer has been penalised by the Home Office for employing individuals subject to immigration control. It is proposed such measures will be implemented from April 2018. Read more here.

For more detail on any of the proposals currently in the consultation process, please contact a member of the Employer Solutions team.

7 Employer Matters jcca.co.uk

Government consultation documents – What’s in store for the future?

Reporting requirements

On 6 April 2016, we saw the demise of the dispensation tool which exempt employers from reporting certain reimbursed expenses paid to employees. Instead, HMRC introduced exemptions to simplify the system, meaning certain qualifying business expenses need not be reported such as travel and subsistence payments for qualifying business journeys. However, employers should beware that while there is no reporting requirement, the necessity to keep accurate records of reimbursed expenses remains, as this is an area likely to be closely reviewed by HMRC Inspectors during any Compliance Check.

Payrolling of benefits

Payrolling benefits has now been in place for almost a year, allowing HMRC to collect income tax on most benefits in kind through an Employers’ payroll. Employers who register with HMRC to use the online payrolling benefits-in-kind (PBIK) service do not have to report them on a P11D form, thus reducing the administrative burden on employers while also ensuring that employees are taxed in real time on benefits they receive.

Under this service, employers are currently not able to payroll vouchers and credit tokens, living accommodation, and interest free and low interest (beneficial) loans. However, from 6 April 2017, legislation is proposed to allow the payrolling of vouchers and credit tokens.

It should be noted that employers are also still required to complete a P11D(b) form to

summarise the Class 1A National Insurance due on benefits in kind.

Don’t forget to register in time!

The deadline for registering to payroll benefits in 2016/17 is 5 April 2017. Failure to register in time will mean an employer will not be able to payroll benefits for 2016/17 unless a voluntary arrangement is reached with HMRC. The registration process is done online and is a straightforward process, however, should you need any help or guidance, our experts would be happy to help.

Making good benefits in kind

The introduction of payrolling benefits has highlighted an issue in respect of employees “making good” the benefits in kind they receive from their employers.

Legislation allows for making good of benefits over a range of dates both within and after the end of the tax year in which the benefit arises. There is no uniform legislation covering this area and HMRC recently held a consultation on the matter. As noted in the article on consultations, HMRC is proposing a uniform date of 6 July following the end of the tax year for benefits to be made good where this has not already been dealt with via the payroll before the end of the tax year.

The consultation period has now ended and we will keep you posted on the outcomes. So please watch this space!

Benefits in kind – Key changes to be aware of

8 Employer Matters jcca.co.uk

Scottish income tax changes –

What are the implications?

Scottish Finance Secretary Derek Mackay delivered his draft Budget for 2017/18 on 15 December 2016. For the first time the Scottish Government are choosing to do things differently from the rest of the UK.

Income Tax Rates 2017/18

Basic Rate 20%

Higher Rate 40%

Additional Rate 45%

Income tax rates

• The Finance Secretary confirmed that there will be no change in income tax rates applying from 2017/18.

• The basic rate of income tax will continue to be levied at 20%; higher rate tax at 40% and additional rate tax at 45% on non-savings income such as employment, self-employment and rental income.

• The higher rate threshold for 2017/18 is to be set at £43,430. In the rest of the UK, this will be £45,000.

With the higher rate threshold for Scottish taxpayers diverging from the rest of the UK, employers will with effect from 6 April 2017 be operating different tax rates for employees who

are Scottish taxpayers, compared to taxpayers elsewhere in the UK.

As we understand it from HMRC, employers are not expected to determine the residence status of their employees and commercial software should be able to manage the payroll compliance. However with those Scottish taxpayers affected by the change expected to pay £314 more in tax than taxpayers located elsewhere in the UK, employees may have questions.

This is the first change to the way Scottish earners will be taxed and it may not be the last but Johnston Carmichael can keep you up to date to ensure employers, their payroll software and their employees are ready for the proposed changes ahead.

9 Employer Matters jcca.co.uk

Have your say –

What are your top 5 employer challenges?

We understand that as an employer, you may face many challenges

in the day to day running of your organisation. We’re here to help you

face these challenges, and provide you with the necessary tools to run a

successful business.

We’d like to know about the challenges you are up against, so that

we can tailor our newsletter content and insights to better meet your

needs.

All you need to do is complete our 1 survey question here.

Stop press –

New charges for employing foreign workers

The UK Government is planning a new ‘immigration skills charge’

of £1,000 per worker to be introduced in April 2017 for employers

sponsoring foreign workers with a Tier 2 Visa. From what we

understand, this is an annual charge per worker, but is reduced to

£364 per annum per worker for small or charitable employers such

as universities. This is only in respect of workers from outside the

European Union at the moment, but with Brexit on the horizon this

could well be extended.

One to keep an eye out on, and we will keep you posted on any further

updates.

Contact us

Richard BrittenAberdeen01224 212222richard.britten@jcca.co.uk

Andrew GoodAberdeen01224 212222andrew.good@jcca.co.uk

Kirsty WheelerAberdeen01224 212 222kirsty.wheeler@jcca.co.uk

Keith HunterEdinburgh0131 220 2203keith.hunter@jcca.co.uk

Lauren MillerForfar01307 465565lauren.miller@jcca.co.uk

Chris CampbellElgin01343 547492chris.campbell@jcca.co.uk

Carol JamesInverness01463 796200carol.james@jcca.co.uk

Employer Solutions team

If you would like further clarification on any tax related issues raised in this newsletter, or would like to discuss how they may impact your business or organisation then please feel free to contact Richard Britten, Head of Employer Solutions, or one of our specialists below.

Johnston Carmichael is a member firm of the PKF International Limited family of legally independent firms and does not accept any

responsibility or liability for the actions or inactions on the part of any other individual member or

correspondent firm or firms.

Disclaimer: This update has been published for information purposes only. The contents of this document are not a substitute for tax, legal or professional

advice. The law may have changed since this document was first published and whilst all possible care has been taken in the completion of this document,

readers should seek tax advice based upon their own particular circumstances.