In this month’s eNews we report on pertinent announcements from the Autumn Statement focussing on issues for parents, employers and company car drivers, buy to let landlords and those with second homes. We also report on the forthcoming Scottish Budget and other pertinent announcements for employers.
Please do contact us if you would like any further information on any of the issues.
Scottish income tax rates and Scottish Budget
From April 2016, the Scottish Parliament will have the power to set its own rate of income tax to fund spending by the Scottish government. The rate will be set in the Scottish Budget on 16 December and we will update you on pertinent announcements.
Those who are resident in Scotland will pay two types of income tax on their non-savings income. The main UK rates of income tax will be reduced by 10p for Scottish taxpayers and in its place the Scottish Parliament will be able to levy a Scottish Rate of Income Tax (SRIT) applied equally to all Scottish taxpayers. If the SRIT is set at 10p then income tax rates will be the same as in the rest of the UK. SRIT can however be reduced to zero and there is no upper limit.
The Scottish Rate of Income Tax doesn’t apply to income from savings such as building society interest or income from dividends. Tax on this income will stay the same for all taxpayers across the UK. It also doesn’t affect income tax thresholds and allowances, which will continue to be set by the UK government.
The definition of a Scottish taxpayer is based on where an individual lives in the course of a tax year. Scottish taxpayer status applies for a whole tax year. It is not possible to be a Scottish taxpayer for part of a tax year. HMRC will identify those individuals who will be Scottish taxpayers based on their records of where individuals live. In early December HMRC started to write to potential Scottish taxpayers to confirm that the address held in their records is correct. If it is, taxpayers will need to take no further action. Those paying the new rate will see their tax code prefixed by an ‘S’ and their income tax will continue to be collected from pay and pensions in the same way as it is now.
Further details and the effect on employers can be found by visiting the following link.
Internet link: GOV.UK briefing
Autumn Statement 2015 – key announcements for parents
Reversal of most of the tax credit proposals
A number of changes to tax credits and Universal Credit were announced in the July Budget but the Chancellor has scrapped some of the changes following a defeat of the proposals by the House of Lords. The government has confirmed that:
- The rate at which a tax credit claimant’s award is reduced as each pound of their income exceeds the income threshold (known as the taper rate) will remain at 41% of gross income from April 2016.
- The level of income at which a claimant’s tax credit award begins to be tapered away (known as the income threshold), will remain at £6,420 per year from April 2016. Claimants earning below this amount will retain their maximum award.
- The income rise disregard in tax credits will reduce from £5,000 to £2,500. This is the amount by which a claimant’s income can increase in-year compared to their previous year’s income before their award is adjusted.
Changes to the prospective Tax-Free Childcare scheme
Under the scheme, which is expected to launch in 2017, the relief will be 20% of the costs of childcare up to a total of childcare costs of £10,000 per child per year. The scheme will therefore be worth a maximum of £2,000 per child (£4,000 for a disabled child).
The government has announced changes to the conditions to qualify for Tax-Free Childcare. All parents in the household must:
- meet a minimum income level based on the equivalent of working 16 hours a week at the National Living Wage (increased from eight hours at the National Minimum Wage)
- each earn less than £100,000 a year (reduced from £150,000), and
- not already be receiving support through tax credits or Universal Credit.
The Chancellor of the Exchequer, George Osborne, has announced that the government will publish its next Budget on Wednesday 16 March 2016.
Internet links: GOV.UK main tax announcements GOV.UK news
Autumn Statement 2015 – key announcements for employers and company car drivers
Retaining the 3% diesel supplement for company cars which was to be abolished
The scale of charges for working out the taxable benefit for an employee who has use of an employer provided car are now announced well in advance. Cars are taxed by reference to bands of CO2 emissions. From 6 April 2015 the percentage applied by each band went up by 2% and the maximum charge is capped at 37% of the list price of the car.
From 6 April 2016 there will be a further 2% increase in the percentage applied by each band with similar increases in 2017/18 and 2018/19. For 2019/20 the rate will increase by a further 3%. It had been expected that the 3% diesel supplement would be removed from 6 April 2016, however this 3% differential will now be retained until April 2021. This is a blow to diesel car drivers who were expecting to see their car benefit reduce from April 2016.
The introduction of an apprenticeship levy
The government will introduce the apprenticeship levy in April 2017. It will be set at a rate of 0.5% of an employer’s paybill, which is broadly total employee earnings excluding benefits in kind, and will be paid through PAYE. Each employer will receive an allowance of £15,000 to offset against their levy payment. This means that the levy will only be paid on any paybill in excess of £3 million.
Internet link: GOV.UK Blue Book
Autumn Statement 2015 – key announcements for buy to let landlords and those with second homes
Higher SDLT on purchases of additional residential properties
Higher rates of SDLT will be charged on purchases of additional residential properties (above £40,000), such as buy to let properties and second homes, from 1 April 2016. The higher rates will be three percentage points above the current SDLT rates.
The higher rates will not apply to purchases of caravans, mobile homes or houseboats, or to corporates or funds making significant investments in residential property. The government will consult on the policy detail, including whether an exemption for corporates and funds owning more than 15 residential properties is appropriate. The Chancellor stated that ‘more and more homes are being bought as buy to lets or second homes’ and ‘frankly, people buying a home to let should not be squeezing out families who can’t afford a home to buy’.
No mention was made by the Chancellor on the position in Scotland. It is the Scottish Government which sets the rates for the equivalent tax on property – the Land and Buildings Transaction Tax.
The introduction of a payment on account of any CGT due on the disposal of residential property
From April 2019, a payment on account of any CGT due on the disposal of residential property will be required to be made within 30 days of the completion of the disposal. This will not affect gains on properties which are not liable for CGT due to Private Residence Relief.
Currently, CGT is not payable on a disposal of an asset until 31 January following the tax year in which a disposal is made. So a disposal made on the 6 April 2016 will not result in a tax bill until 31 January 2018.
This measure is another blow for buy to let landlords.
Internet link: GOV.UK main tax announcements
Advisory fuel rates for company cars
New company car advisory fuel rates have been published which took effect from 1 December 2015. The guidance states: ‘You can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.
The advisory fuel rates for journeys undertaken on or after 1 December 2015 are:
Engine size Petrol
1400cc or less 11p
1401cc – 2000cc 13p
Over 2000cc 20p
Engine size LPG
1400cc or less 7p
1401cc – 2000cc 9p
Over 2000cc 13p
Engine size Diesel
1600cc or less 9p
1601cc – 2000cc 11p
Over 2000cc 13p
Please note that not all of the rates have been amended so care must be taken to apply the correct rate.
Other points to be aware of about the advisory fuel rates:
- Employers do not need a dispensation to use these rates. Employees driving employer provided cars are not entitled to use these rates to claim tax relief if employers reimburse them at lower rates. Such claims should be based on the actual costs incurred.
- The advisory rates are not binding where an employer can demonstrate that the cost of business travel in employer provided cars is higher than the guideline mileage rates. The higher cost would need to be agreed with HMRC under a dispensation.
If you would like to discuss your car policy, please contact us.
Internet link: GOV.UK AFR
‘Payrolling’ benefits in kind
From April 2016 the government is introducing a voluntary framework to allow employers to payroll most employee benefits in kind (benefits) rather than report them at the end of the tax year on a form P11D.
In order to payroll benefits an employer will need to include a notional value for employee benefits as taxable pay in the regular payroll cycle. By doing this the income tax due on the benefits can be collected in real time.
Currently the tax due on employee benefits is collected through an adjustment to the employee’s tax code. The way that tax codes work means that HMRC try to collect the right amount of tax at the right time. However, when benefits start/stop or are changed there can be a delay in changing the tax code which may result in an employee under or over paying tax.
One of the advantages to employers is that if employees’ benefits are payrolled then forms P11D will not need to be completed. Payrolling is not possible for some benefits such as living accommodation, beneficial loans and credit vouchers and tokens.
HMRC have confirmed that there will be no change to the process for reporting and collecting Class 1A NICs. Employers will still need to complete a form P11D(b) after the end of the tax year and calculate and pay the 13.8% employer only liability.
Employers need to register for the new service by 5 April 2016 as HMRC cannot process changes in year. HMRC are advising that employers should ideally register before 21 December to avoid being sent multiple tax codes for employees.
Please contact us if this is of interest to you.
Internet links: GOV.UK payrolling benefits Employer Bulletin
Guidance on use of zero hours contracts
The government has published guidance for employers on the use of zero hours contracts. The guidance sets out where zero hours contracts may be appropriate and also sets out alternatives and best practice.
The guidance gives examples of where zero hours contracts might be appropriate:
- new businesses, where demand might be fluctuating and unpredictable
- seasonal work, for example around Christmas
- employers needing cover for unexpected sickness in critical roles
- catering businesses using additional experienced staff when a special event is booked and
- a business testing a new service that they are thinking about providing, needing employees on an ad hoc basis.
Internet link: GOV.UK zero-hours-contracts-guidance
Deadline for final IR35 payments and returns
The ‘IR35’ rules are designed to prevent the avoidance of tax and national insurance contributions (NIC) through the use of personal service companies and partnerships.
The rules do not stop individuals selling their services through either their own personal companies or a partnership. However, they do seek to remove any possible tax advantages from doing so.
Intermediaries who have operated the IR35 concession to delay making a final return and payment for the tax year ending 5 April 2015, have until 31 January 2016 to submit accurate figures and pay any outstanding amounts of PAYE and NIC due.
The concession operates where a provisional return and payment have been submitted but cannot be confirmed because final figures of income, including the calculation of the ‘deemed payment’, were not known at the end 2015 tax year.
HMRC advise that adjustments to the provisional RTI return should be reported using ‘an Earlier Year Update (EYU)’ and must be submitted electronically to HMRC by 31 January 2016. Interest will be charged on any balancing payment.
Please advise us if you would like help with this issue.
Internet links: GOV.UK IR35 guidance Employer Bulletin
Planning a party for employees
With the season for workplace parties fast approaching we thought it would be a good idea to remind you of the tax implications of these types of events. The good news is that, unlike entertaining customers, the costs of entertaining employees are generally allowable against the profits of the business.
But what about the tax consequences for the employees themselves? Is it a perk of their jobs and will they have to pay tax on a benefit?
Generally, as long as the total costs of all employee annual functions in a tax year are less than £150 per attendee (VAT inclusive) there will be no tax implications for the employees themselves. In considering this limit make sure you have included all the costs, which may include not only the meal itself but also any drinks, entertainment, transport and accommodation that you provide.
If the costs are above the £150 limit then the full cost will be taxable on the employee. In that case do get in touch so we can advise you how best to deal with them.
Internet link: HMRC guidance
This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm. Please contact us for further information.