Employment Taxation

Abolition of the £8,500 Threshold for Benefits in Kind

The £8,500 earnings threshold that determines whether employees pay income tax on all of their benefits in kind and expenses, and whether employers pay Class 1A National Insurance contributions (NICs), is to be abolished for 2016/17 onwards.

Currently, an employee in so-called lower-paid employment (i.e. whose earnings for the tax year are less than £8,500) pays tax only on certain employee benefits, e.g. living accommodation, vouchers and credit-tokens. The abolition of the threshold will mean all employees will be taxed on their benefits and expenses in the same way. The employer’s NICs treatment will follow the income tax treatment.

New exemptions will be introduced to cover benefits for ministers of religion earning less than £8,500 and for employees who are carers; the latter will cover board and lodging on a reasonable scale that is provided in the home of the person being cared for.

Statutory Exemption for Trivial Benefits in Kind

A statutory exemption is to be introduced for 2015/16 onwards that will allow employers to identify and treat certain low value benefits provided to employees or former employees as trivial. These benefits will then be exempt from income tax and Class 1A National Insurance contributions and will not need to be reported to HMRC. A benefit will be trivial if it meets all the following conditions:

  • the benefit is not cash or a cash voucher;
  • the cost of providing it does not exceed £50;
  • the benefit is not provided under salary sacrifice arrangements or any other contractual obligation; and
  • it is not provided in recognition of particular services performed, or to be performed, by the employee.

An annual cap of £300 will be introduced for office holders of close companies (broadly those controlled by 5 or fewer people) and employees who are family members of those office holders. Those affected by this cap will be able to receive a maximum of £300 worth of exempt trivial benefits each year.

Employee Expenses: Dispensations

The current system whereby an employer can apply to HMRC for a dispensation to pay expenses free of tax in certain circumstances will be scrapped for 2016/17 onwards. Instead, expenses provided to employees will automatically be exempt in any case where the employee would have been eligible for a deduction had he incurred and paid the equivalent expense himself. The exemption will also allow the employee to be paid a scale rate rather than be reimbursed the actual expense he has incurred. This can either be a rate set by HMRC or a rate that the employer has agreed with HMRC. The exemption will also apply to benefits in kind provided by employers in respect of expenses incurred by their employees It will not apply to expenses/benefits provided as part of a salary sacrifice arrangement or in conjunction with other arrangements that seek to replace salary with expenses. Similar rules will apply for NIC purposes.

Collection of Tax on Benefits and Expenses through Voluntary Payrolling

Legislation is to be introduced to allow HMRC to make changes to the PAYE Regulations to provide for voluntary payrolling of certain benefits in kind. The intention is that employers will be able to opt to payroll benefits for cars, car fuel, medical insurance and gym membership for 2016/17 onwards. Where employers do so, they will not have to make a return on Form P11D for these benefits. Instead, they will report the value of the benefits through Real Time Information, and that value will count as PAYE income liable to deduction using the PAYE Tax Tables. The amended Regulations will determine the value to be placed on the benefit for this purpose.

Van Benefit Charge for Zero Emission Vans

The van benefit charge for zero emission vans will increase from £nil, beginning in 2015/16. The van benefit charge for such vans will be 20% of the van benefit charge for vans which emit CO2 in 2015/16, 40% in 2016/17, 60% in 2017/18, 80% in 2018/19 and 90% in 2019/20. From 2020/21, the van benefit charge for zero emission vans will be the same as the van benefit charge for vans which emit CO2.
Company Car Tax Rates and Bands for 2017/18 and 2018/19

Rates and bands for 2017/18
For cars with CO2 emissions there will be a 9% band for emissions of 0g–50g CO2 per km, a 13% band for emissions of 51g–75g CO2 per km, a 17% band for other low emission cars (76g–94g CO2 per km); and a 1% increase for each rise in emissions of 5g CO2 per kg from 95g CO2 (18%) to the existing maximum of 37%.

For cars without a CO2 emissions figure the appropriate percentage for a cylinder capacity of up to 1,400cc will be 18%; for 1,401–2,000cc it will be 29%; and for 2,000cc plus it will remain at 37%.
For cars first registered before 1 January 1998 the appropriate percentage for capacity up to 1,400cc will be 18%; for 1,401–2,000cc it will be 29%; and for more than 2,000cc it will remain at 37%.

Rates and bands for 2018/19
For cars with CO2 emissions there will be a 13% band for emissions of 0g–50g CO2 per km, a 16% band for emissions of 51g–75g CO2 per km, a 19% band for emissions of 76g–94g CO2 per km; and a 1% increase for each rise of 5g CO2 per km from 95g CO2 (20%) to the existing maximum of 37%.
For cars without a CO2 emissions figure, the appropriate percentage for a cylinder capacity of up to 1,400cc will be 20%; for 1,401–2,000cc it will be 31%; and for more than 2,000cc it will remain at 37%.
For cars first registered before 1 January 1998 the appropriate percentage for capacity of up to 1,400cc will be 20%; for 1,401–2,000 cc it will be 31%; and for more than 2,000cc it will remain at 37%.

Employment Intermediaries

The Government is concerned at the growing use of overarching contracts of employment that allow some temporary workers and their employers to benefit from tax relief for home-to-work travel expenses, relief not generally available to other workers. The rules will be changed to restrict travel and subsistence relief for workers engaged through an employment intermediary, such as an umbrella company or a personal service company, and under the supervision, direction and control of the end-user. This will take effect from 6 April 2016 following consultation on the detail.

Exemption from Income Tax and National Insurance Contributions (NICs): Lump Sums provided under Armed Forces Early Departure Scheme

Lump sum payments made to qualifying armed forces personnel under the existing Early Departure Payment (EDP) 2005 scheme are exempt from income tax and are disregarded for NICs purposes. The scheme will be replaced by the EDP 2015 scheme on 1 April 2015. Legislation will be introduced in Finance Bill 2015 to ensure that the tax and NICs treatment of lump sum payments under the new scheme is the same as those under the existing scheme.