Autumn Budget 2017—Employment taxes and share incentives

This analysis is part of the Lexis®PSL Tax team’s summary of the Autumn Budget 2017.   Some of the links require a LexisPSL subscription. If you are not a subscriber, you can take a free trial here.

Disguised remuneration

The government has confirmed the final part of the package of amendments to the disguised remuneration regime that was originally announced at Budget 2016. Provisions will be included in FB 2018 to:

• make changes to the new close companies gateway, which originally formed part of FB 2017 but, as announced at Spring Budget 2017, was delayed for implementation until 6 April 2018 in order to allow time for further consultation. The gateway will be revised to clarify how the regime applies to the remuneration of employees and directors who have a material interest in their close company employer and to put beyond doubt that ITEPA 2003, Part 7A applies regardless of whether contributions to disguised remuneration avoidance schemes should previously have been taxed as employment income. This change will involve an amendment to ITEPA 2003, s 554A and will have effect from 22 November 2017, and
• make further revisions to the provisions which impose charges on disguised remuneration loans outstanding on April 2019. These provisions were originally announced at Budget 2016 and are included in Finance Act (No 2) 2017. They will now be amended to include new obligations on affected employees and self-employed individuals to notify their employer and HMRC by 1 October 2019 of certain loan charge information between April 2019 and October 2019. There will also be an amendment to section 689 of ITEPA 2003 to ensure that an employee who benefitted from the disguised remuneration avoidance scheme is liable for the tax arising on the loan charge where their employer is based offshore. These changes will take effect from Royal Assent to FB 2018

See: Autumn Budget 2017 (para 3.71), OOTLAR (para 1.14), TIIN: Disguised remuneration: further update, and Draft clause.

Save-As-You-Earn Pause

The government will allow employees on maternity and parental leave to take a pause of up to 12 months from saving into their Save-As-You-Earn employee share option scheme. Employees can currently pause saving for six months before the share option will lapse (see Practice Note: How SAYE schemes work and key features—When does an SAYE option lapse?). This increase is to allow employees on maternity and parental leave to continue saving into the scheme and now aligns much better with more general maternity leave entitlements. It also provides a greater incentive for employees to return to the same employer at the end of their leave.

The change will have effect on and after 6 April 2018. HMRC guidance will set out the changes.

See: Autumn Budget 2017 (para 3.24) and OOTLAR (para 2.14).

Benefits-in-kind: electric vehicles

FB 2019 will provide that, from April 2018, there will be no benefit-in-kind charge on electricity provided by employers at workplace charging points for charging employees’ electric (or hybrid) cars.

See: Autumn Budget 2017 (para 3.13) and OOTLAR (para 2.15).

Armed Forces personnel accommodation

FB 2018 will introduce an income tax exemption for certain allowances paid to Armed Forces personnel for renting or maintaining accommodation in the private market. A Class 1 NICs disregard will also be introduced. The change will have effect from Royal Assent of FB 2018, and replicates the position where members of the Armed Forces are provided with living accommodation by the Ministry of Defence.

See: Autumn Budget 2017 (para 3.15), OOTLAR (para 1.11) and Income Tax: armed forces accommodation allowance exemption.

Taxation of employee business expenses

As announced at Autumn Statement 2016, the government issued a call for evidence on the taxation of employee expenses on 20 March 2017. The government’s formal response will be published on 1 December 2017.

As part of the wider response, the following measures were announced:

• Subsistence benchmark scale rates: FB 2019 will legislate the existing concessionary travel and subsistence overseas scale rates in order to provide certainty to employers. In addition, FB 2019 will include provisions so that employers will no longer be required to check receipts when paying employees for subsistence using either benchmark rates. Employers will only be required to ensure employees are undertaking qualifying travel. This administrative easement will only apply to standard meal allowances paid in respect of qualifying travel or the newly legislated overseas scale rates. See: Autumn Budget 2017 (para 3.14) and OOTLAR (paras 2.17 and 2.18)
• Self-funded training: the government will consult in 2018 on extending the scope of tax relief currently available to employees and the self-employed for work-related training costs. See: Autumn Budget 2017 (para 3.14) and OOTLAR (para 2.20)
• Guidance and claims process for employee expenses: HMRC will work with external stakeholders to explore improvements to the guidance on employee expenses (particularly on travel and subsistence) and the claims process for tax relief on employee expenses. The aim is to increase simplicity and improve awareness of the process. See: Autumn Budget 2017 (para 3.14) and OOTLAR (para 2.19)

Future developments

• Off-payroll working in the private sector: following the April 2017 extension of the IR35 rules to off-payroll workers in the public sector, the government is to consider how best to tackle non-compliance with IR35 in the private sector. It will consult on the issue in 2018, with one possible option being extending the public sector reforms to the private sector. The consultation will draw on the experience of the public sector reforms as well as external research already commissioned by the government (which is due to be published in early 2018). See: Autumn Budget 2017 (para 3.7) and OOTLAR (para 1.15)
• Employment status discussion paper: the government will publish a consultation paper on options for reforming and improving the employment status tests for both employment rights and tax purposes. This consultation will form part of the government’s response to the Taylor review of modern working practices. See: Autumn Budget 2017 (para 3.8) and OOTLAR (para 2.21)
• NICs Employment Allowance: the government has discovered evidence of some employers abusing the Employment Allowance, often by using offshore arrangements. From 2018, HMRC will require up-front security from employers with a history of avoiding paying NICs in this way. See: Autumn Budget 2017 (para 3.70)

Measures pre-announced

• NICs Bill: as announced on 2 November 2017, the NICs Bill will be introduced in 2018 with its measures taking effect from 2019. This delay, to ensure there is sufficient time to work with Parliament and stakeholders on the detail of the Bill, results in the changes to the three main measures (being the abolition of Class 2 NICs, changes to the NICs treatment of sporting testimonials and reforms to the NICs treatment of termination payments) being delayed by one year from the original proposals. See: Autumn Budget 2017 (para 3.10) and OOTLAR (para 2.13)
• Reform of tax treatment of termination payments: foreign service relief: as announced at Budget 2016 and confirmed at Spring Budget 2017, FB 2018 will remove the foreign service exemption for termination payments for employees who are UK resident in the tax year their employment is terminated. Following consultation, the legislation remains unchanged from the draft published on 13 September 2017. See: OOTLAR (para 1.13)

Further Guidance

1. SUMMARY OF KEY ANNOUNCEMENTS AND BACKGROUND
2. BUSINESS AND ENTERPRISE
3. INCENTIVISED INVESTMENT
4. EMPLOYMENT TAXES AND SHARE INCENTIVES
5. REAL ESTATE TAXES
6. FINANCE
7. VAT
8. TAX ADMINISTRATION AND AVOIDANCE
9. INTERNATIONAL
10. ENERGY AND ENVIRONMENT

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