Employment taxes

Employment taxes in the spotlight

As well as previously announced changes to employment tax rules, the Government will be consulting on benefits in kind and monitoring potential avoidance schemes related to employment allowance claims.

Following the previously announced changes to salary sacrifice rules from April 2017, the Government intends to consult further on current exemptions and valuation methodologies for benefits in kind, specifically employer-provided living accommodation. It also wants to gain a better understanding of the current use of income tax relief for employee expenses, especially where these are not reimbursed by the employer.

Provided the changes do not impose an additional tax burden, the reform of archaic rules in areas such as accommodation benefits is to be welcomed. However, the changes may result in increased taxes, so proposals will need to be examined in detail once known.

Separately, the Government has become aware of potential avoidance schemes in relation to NIC employment allowance claims. It will therefore be monitoring this situation to determine whether anti-avoidance legislation is required.

Meanwhile, a previously  announced intention to remove NICs from the effects of the Limitation Act (i.e. removing the six-year limit for legal recovery) has been deferred to allow for more consultation on the impact of the changes.

Enterprise Management Incentives
The Government will seek state aid approval to extend availability of the relief beyond 2018.

Previously announced changes

A range of other changes, as previously announced, will be included in the Finance Bill and effective from April 2017. These include:
  • removal of PAYE and NIC advantages for certain optional remuneration packages (i.e. salary sacrifice);
  • new rules for off-payroll workers in the public sector, but with a minor amendment in that the entity assessing the tax will not be obliged to take into account employee expenses;
  • a number of changes to the tax treatment of termination payments – alignment of PAYE and NIC so that employer NIC applies on payments over £30,000, bringing all non-contractual payments in lieu of notice (PILONs) into the scope of PAYE and NIC, and the loss of foreign service tax relief; 
  • further legislation on simplifying the process and clarifying the use of PAYE settlement agreements, rather than merely updating HMRC guidance;
  • an increase in the tax and NIC relief available for employer-arranged pensions advice from £150 to £500;
  • removal of various tax reliefs in relation to the previous abolition of employee shareholder status;
  • setting a uniform date of 6 July for employees to make good the cost of benefits in kind for P11D purposes.