National Insurance Contributions (NICs)

In 2003/04 NIC rates for employers, employees and the self-employed were all increased. For 2004/05 the thresholds have been increased but the percentage rates remain as in 2003/04.

Action point

Although employees’ NICs only become payable once earnings exceed £91 per week, it is still the case that earnings between £79 and £91 per week in 2004/05 protect an entitlement to basic state retirement benefits without incurring a liability to NIC. Consider whether you are making full use of this rule.

Company cars: fuel scale charge

Where fuel is provided for private use with a company car, the tax charge on the benefit is computed as £14,400 x the percentage figure used to compute the company car benefit. There is no change in the base figure for 2004/05 but, because the percentage applied at a given level of emissions has increased, the actual charge will rise. For example the charge on a vehicle with an emissions rate of 200gms per km will increase from £3,456 to £3,744.

Action point

Given the current level of the charge, review the position where private fuel is provided to check that sufficient private miles are being driven to warrant the charge. It may be cheaper to pay for private fuel personally.

Company vans

Following consultation, it has been decided to amend the tax benefit where an employee is able to use their employer’s van for private journeys. The charge of £500 remains in place for 2004/05. From 6 April 2005 the charge will only apply where the employee has unrestricted private use of the van. If the employer specifically prohibits any private use, other than home to work travel, there will be no charge at all. It is intended to increase the charge for unrestricted private use significantly from April 2007 to £3,000 irrespective of the age of the vehicle. A separate charge of £500 on private fuel provided by the employer (currently included in the scale charge) will also be introduced in April 2007.

Comment

Employers need to reconsider their policies on the use of company vans and, if possible, introduce the restriction on private use to ensure that the tax charge (and the corresponding Class 1A NIC charge) is removed in 2005.

Exemption for emergency vehicles

Employees, in the fire, police and ambulance services who are provided with specially equipped emergency vehicles, currently pay tax on the private use of the vehicles even when they are required to take them home because of the need to respond to emergency calls. This charge will no longer apply from 6 April 2004.

Childcare costs

Currently employees are exempt from both tax and NICs where an employer provides a place in a workplace nursery. In addition childcare vouchers and childcare arranged by the employer are specifically exempt from NICs. Measures have been announced to take effect from April 2005 including:

• a new tax exemption to cover any formal registered childcare or approved home childcare contracted by the employer such as a local nursery, out-of-school club or childminder
• a tax exemption for childcare vouchers
• a rule that where schemes operate they should be open to all employees.

The new exemption will cover the first £50 per week and will apply for both tax and NIC purposes.

Enterprise Management Incentives (EMI)

The EMI scheme is one of a number intended to encourage employers to grant share options to employees. A small amendment is proposed to remove the requirement that where the company is not a stand-alone company, it can only issue EMI options if all of its subsidiaries are at least 75% owned by the company. This should allow more groups to take advantage of EMI options to encourage recruitment.