What employers need to know for the new tax year: key employment tax changes
There are a number of key employment tax changes and dates that employers need to keep in mind now we have moved into the new tax year. Here we highlight some of those changes and provided a handy timeline of deadlines to keep a note of.
Voluntary payrolling of benefits
Employers now have the option to process benefits in kind through the payroll to reduce year end P11D reporting, provided of course that tax and NICs are also paid via the payroll. Although P11D reporting is reduced, it is still necessary to prepare a P11D (b) form to account for the Class 1a National Insurance that arises.
The types of benefits suitable for payrolling include company cars, private medical cover, taxable subscriptions and taxable fuel benefits.
It should be noted that you need to register to payroll benefits before the start of the tax year, so you can be thinking about registering for the 2019/20 tax year whilst you are completing your P11D forms for last year.
Salary sacrifice arrangements (Optional Remuneration Arrangements – OpRA)
From April 2017, changes to the employment tax rules in respect of salary sacrifice and other similar arrangements took away the tax and employer’s National Insurance Contribution (NIC) advantages of the provision of many non-taxable (or tax advantaged) benefits, in lieu of taxable salary.
All new salary sacrifice and other arrangements which allow employees to swap cash for benefits are subject to the OpRA legislation. This ensures that employees pay income tax on the higher value of the taxable benefit, or the cash given up in lieu. Employers are subject to the same rules in respect of employer’s NICs.
Some exemptions remain however, including employer pension contributions, pension advice, cycle to work schemes and low emission company cars.
If you are using a salary sacrifice scheme, we recommend you check your arrangements are in line with the new rules.
Termination payment changes
Non-contractual payments in lieu of notice (PILONs) paid on or after 6 April 2018 are now treated in the same way as contractual PILONS, meaning that PAYE and NICs will apply in full. Foreign service relief has also been abolished (except for seafarers). This means the tax and NICs rules are the same for almost everyone, regardless of their contract or the structure of their termination payments.
Whilst this looks like a simplification, it brings additional complications to the calculation of termination payments when employees leave without working their full notice period.
Employers should check that their payroll system or services are fully equipped to carry out the new calculations correctly.
The proposed employer’s NIC charge on the element of a termination package in excess of £30,000 has however been delayed until April 2019.
Since April 2016, most businesses have been entitled to an annual employment allowance. This contributes the first £3,000 of employer’s NICs each year.
You can check if your business qualifies by asking your tax adviser, or by reviewing HMRC’s Eligibility of Employment Allowance: Further employer guidance.
If you are eligible for the allowance and haven’t already claimed it, you can apply for repayment from HMRC within four years of the end of the tax year concerned.
Larger employees will be liable to pay the apprenticeship levy. The levy will only be paid by employers with a pay bill in excess of £3 million per year, at a rate of 0.5%.
Pensions and auto enrolment
By now, employers should have increased their minimum auto enrolment contribution as outlined in our recent article, ‘Be ready for the increase in minimum contributions for auto enrolment pensions’.
Employees still have the option to opt-out of the scheme but must do so of their own free will.
National Minimum Wage/National Living Wage
Both National Minimum Wage (NMW) and National Living Wage rates increased in April 2018. As HMRC’s automatic public naming and shaming policy continues, it is more important than ever to ensure your employees are receiving the correct amount of pay. Failure to do so could lead to reputational damage and significant financial penalties as highlighted in our recent article, ‘National Minimum Wage: Time for action as HMRC moves the goalposts’.
It is important to remember that the majority of cases where employers have been named as defaulters for NMW purposes have been the result of an error or misunderstanding of the rules. Unfortunately, this does not exempt employers from being included within the naming scheme.