Spring Budget 2017—Employment Taxes

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

Off-payroll working in the public sector

As announced at Budget 2016 and confirmed at Autumn Statement 2016, FB 2017 will reform the way IR35 applies to public sector bodies. As a result of feedback received during the technical consultation on FB 2017, it will be optional for the public sector body (or agency, if used) to take account of the worker’s expenses when calculating the tax due. This change puts the affected workers in the same position as employees, whose employers can choose whether or not to reimburse incurred expenses. This will not affect the individual’s right to claim tax relief on legitimate employment expenses from HMRC as part of their own tax returns. In addition, the application of the rules to parliament and statutory auditors will be clarified.

The reform to IR35 will come into effect from 6 April 2017.

See: OOTLAR (para 1.9) and Updated TIIN: Off-payroll working in the public sector: changes to the intermediaries legislation.

Employment Allowance—illegal workers restriction

The government consulted from November 2016 to January 2017 on excluding certain employers from claiming the employment allowance for one year where that employer received a civil penalty from the Home Office for employing illegal workers. The government has decided not to proceed with the proposal as a result of consultation responses which raised concerns around complexity.

See: OOTLAR (para 2.36).

Removing NICs from the effects of the Limitation Act and aligning recovery of debts

As announced at AS 2016, 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. It was originally intended this would be effective from April 2018. However, the government will defer this measure, which will be introduced in a future NICs Bill, to allow more time for a full consultation on the draft legislation.

See: OOTLAR (para 2.8).

Future developments

  • Image rights: HMRC will publish guidelines for employers who make image rights payments in respect of employees. These guidelines will be published in spring 2017 and will improve the clarity of the existing rules. See: Spring Budget 2017 (para 3.50) and OOTLAR (para 2.10)
  • Employee expenses: as announced at AS 2016, the government will publish a call for evidence on 20 March 2017 to better understand the use of the income tax relief for employees’ expenses, including those that are not reimbursed by their employer. See: Spring Budget 2017 (para 3.7) and OOTLAR (para 2.4)
  • Accommodation benefits: as announced at AS 2016, the government will publish a consultation on 20 March 2017 on proposals to bring the tax treatment of employer-provided accommodation and board and lodgings up-to-date. This will include proposals for when accommodation should be exempt from tax, as well as supporting taxpayers during any transition. See: Spring Budget 2017 (para 3.7) and OOTLAR (para 2.6)
  • Taxation of benefits in kind: as announced at AS 2016, 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, in order to better understand whether their use in the tax system can be made fairer and more consistent. See: Spring Budget 2017 (para 3.7) and OOTLAR (para 2.9)
  • National Insurance employment allowance: following reports of schemes being used to avoid paying the correct amount of NICs, HMRC is actively monitoring compliance with the National Insurance employment allowance. The government will consider taking further action in the event this avoidance continues. See: OOTLAR (para 2.33)

Measures pre-announced

  • Reform of tax treatment of termination payments: as announced at Budget 2016 and confirmed at AS 2016, FB 2017 will tighten and clarify the tax treatment of termination payments and the NICs Bill 2017 will align the tax and employer NICs treatment of termination payments. Following consultation on the draft legislation, the government will legislate to abolish the foreign service exemption in FB 2017-18. All of these changes will take effect from 6 April 2018. See: OOTLAR (para 1.8)
  • Salary sacrifice: as announced at AS 2016, legislation in FB 2017 will remove income tax and NICs advantages with effect from 6 April 2017 where benefits in kind are provided through salary sacrifice or other optional remuneration arrangements. Transitional provisions will apply for contractual arrangements entered into before 6 April 2017, but these will normally only apply until 6 April 2018 or, if earlier, their variation or renewal. These transitional provisions will extend to 6 April 2021 for arrangements relating to cars with emissions above 75g CO2 per kilometre, accommodation and school fees. Employer provided pensions and pension advice, childcare vouchers, employer-provided childcare and workplace nurseries as well as cycle to work schemes and ultra-low emissions cars will be excluded from this measure. See: OOTLAR (para 1.7)
  • Disguised remuneration avoidance schemes: as announced at AS 2016, legislation in FB 2017 will tackle the use of disguised remuneration avoidance schemes. There will be a new charge on disguised remuneration loans made after 5 April 1999 that are still outstanding on 5 April 2019. The close companies' gateway will be introduced to commence from 6 April 2018, following further consultation to ensure that it is appropriately targeted at disguised remuneration schemes. Proposals on the collection of tax and NICs from the changes will be set out in a technical consultation later in 2017. FB 2017 will also include legislation to tackle use of similar schemes by the self-employed with effect from 6 April 2017. Legislation will also be introduced with effect from April 2017 to prevent employers claiming a deduction when computing their taxable profits for contributions to a disguised remuneration scheme unless income tax and NICs are paid within a specified period. See: OOTLAR (para 1.10)
  • Alignment of dates for making good on benefits in kind: as announced at Budget 2016 and confirmed at AS 2016, and following a consultation over the summer, FB 2017 will align the dates for an employee to make good on non-payrolled benefits in kind. The date by which the making good must take place if the taxable value of the benefit in kind is to be reduced or removed was determined following the consultation and will be 6 July following the end of the tax year. The change will affect making good on a tax liability arising in the tax year 2017–18 and subsequent years. See: OOTLAR (para 1.6)

Further reading

Further analysis on this Spring Budget:

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Filed Under: Budget

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