TT237: Employment Taxes Update

February 24, 2016
Company Law Update 2

The new tax year is fast approaching and there is a number of important changes being introduced from 6 April 2016, many in respect of employee pay and benefits.

Some of the most important changes are outlined below.

National Living Wage

From 6 April 2016, the National Living Wage will come into force.

All workers aged 25 or over will be entitled to at least £7.20 per hour.

Employment Allowance

This allowance first came into effect from 6 April 2014 due to the provisions of the National Insurance Act 2014. The allowance allows employers to reduce the amount of National Insurance contributions (NICs) they pay for their employees.

The employment allowance was initially set at £2,000 but this will increase to £3,000 from 6 April 2016.

From 6 April 2016, the employment allowance will no longer be available for companies where the director is the sole employee.

Employer National Insurance (NIC) for apprentices under 25

A new Apprentice Upper Secondary threshold will come into effect on 6 April 2016.

Employers will no longer need to pay employers’ NIC for apprentices under the age of 25 working under an approved UK government statutory apprenticeship framework and earning less than £827 per week.

Abolition of Contracted-Out Rebate

The Pensions Act 2014 has abolished the contracted-out rebate from 6 April 2016.

The contracted-out rebate was only available to employers providing defined benefit workplace pension. However, employees that have a workplace pension and have contracted out of the state second pension (S2P) will face higher NIC bills along with their employers.

Voluntary Payrolling

This was a measure suggested by the Office of Tax Simplification to report and tax employee benefits in kind via payroll instead of reporting them on forms P11D.

Most benefits can be processed through payroll except for a limited number of benefits listed below:

  •         vouchers and credit cards
  •         living accommodation
  •         interest free and low interest (beneficial) loans

However, to use this option you will need to register before the start of the new tax year via the government gateway.

You will still need complete form P11D(b) to account for the Class 1A NIC.

Trivial Benefits

The long awaited statutory tax and NIC exemption for trivial benefits will come into effect on 6 April 2016 under the provisions of new s323A ITEPA 2003 to be introduced by Finance Bill 2016.

A limit of £50 per individual will be set although directors or other office holders of close companies, or to members of their families or households, will be subject to an annual cap of £300.

The benefit cannot be cash or a cash voucher and the benefit cannot be provided in recognition of services performed, or to be performed, by the employee as part of their employment.

Dispensations to be abolished from 6 April 2016

A dispensation is an agreement between the employer and HMRC not to report certain business expenses on form P11D. Dispensations will be replaced with an employer-operated exemption for deductible business expenses such as travel and subsistence expenses, business entertainment and professional fees.

This will remove the need for deductible business expenses which are not covered by traditional dispensations have to be entered on forms P11D by the employer, in respect of which employees must claim tax relief via Self-Assessment.

Abolition of the £8,500 threshold

From 6 April 2016, all employees will be liable to income tax on benefits in kind received even if they are earning less than £8,500.

This will also have the added consequence of employers paying Class 1A on such benefits and form P9D will be abolished.

There will be some protection for Ministers of Religion and Home Care Workers.

Scottish Rate of Income Tax and Tax Code

A new tax code will be introduced from 6 April 2016 for Scottish Taxpayers which is denominated by the letter “S”.

A Scottish taxpayer is very broadly a person who lives in Scotland but this can be complicated if a person has a number of places to live.

If you have any questions, please do not hesitate to contact your Barnes Roffe contact.

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