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What payroll professionals need to look at in the budget

on Tuesday, 07 April 2015.

What payroll professionals need to look at in the budget

Well, did the budget live up to your expectations? Were there any rabbits to come out of the bag? Did payroll professionals predict the contents correctly?

It was common thinking that the Chancellor would have two major considerations to take into account:

The General Election taking place on Thursday 7th May 2015, and The state of the economy.

Well, did the budget live up to your expectations? Were there any rabbits to come out of the bag? Did payroll professionals predict the contents correctly?

It was common thinking that the Chancellor would have two major considerations to take into account:

The General Election taking place on Thursday 7th May 2015, and The state of the economy.

I was listening to the Budget in my car on the way up to London and one of the first things I heard was confirmation of the new £1 coin, designed by 15 year old David Pearce from Walsall, to be introduced in 2017. Apparently the design, based on the old 12 sided threepenny bit, was commissioned with security features to prevent the flood of counterfeits.

Now, this was not new news, so it led me to wonder whether there would be anything to write about. Well, the answer is yes, but there are no rabbits.

So, what did Mr Osborne have to say and what impact will this have on the lives of payroll and HR professionals? The Learn Centre presents its round-up of the essential news items. These will be analysed in forthcoming blog posts…

Personal Tax

The Personal Allowance

The personal allowance will be increased to:

£10,800 for 2016-17 and

£11,000 for 2017-18

The basic rate limit will be increased to:

£31,900 for 2016-17 and

£32,300 for 2017-18

As a result, the higher rate threshold will be:

£42,700 in 2016-17 and

£43,300 in 2017-18

This means that both age allowances will have disappeared from 2016-17. The lower age allowance will disappear from the 6 April this year and the higher age allowance will be absorbed into the standard personal allowance from 6 April 2016. The result is that there will be one income tax personal allowance regardless of an individual’s date of birth.

From 2016/17, we will have a Universal Tax Allowance system (announced in Budget 2012), making both the ‘P’ and “Y” suffix letters redundant. The “P” suffix letters will disappear this April and the assumption is that all ‘Y’ suffixes will be recoded as ‘L’ from April 2016.

Tax Thresholds

The Higher rate threshold will increase to £42,285 in 2015/16, as announced in the Autumn Statement 2012. As a result, the Basic rate limit will reduce to £31,785 – this threshold is the value of the Higher rate threshold less the lower personal allowance. Threshold and allowance information can be expressed as follows:

The Higher rate threshold (the point at which tax becomes payable at the Higher rate) increase means that all taxpayers will benefit from the increase in the personal allowance. One impact of these changes is that Tax at 40% will still be payable at a lower level of earnings than it was in 2010/11 until 2017/18.

The Government are claiming that These above inflation increases will take an additional 247,000 individuals out of income tax altogether in 2016-17 and a total of 341,000 by 2017-18.

Tax Rates

Were we going to see a change in tax rates? No - the rates of income tax stay the same for 2015/16 at 20%, 40% and 45%.

The Transferrable Tax Allowance now renamed “The Marriage Allowance”

The Conservative Party Manifesto of 2010 said:

‘We will recognise marriage and Civil Partnerships in the tax system in the next Parliament’

The Chancellor announced a new ‘Transferrable’ tax allowance that would apply to married and Civil Partners. He announced that, effective April 2015, up to £1,000 of any unused Personal Allowance could be transferred but only in the instances where the marginal rate of the highest earner is paying tax at the Basic Rate.

At Budget 2014, the Chancellor announced that this ‘proportion’ will be set to 10% of the Lower Personal Allowance. Given that the first year of operation (2015/16) will see this Allowance set as £10,600, the maximum Transferrable Allowance will be £1,060. The person in the couple that receives the transfer will benefit by paying up to £212 less tax (i.e. £1,060 @ 20%).

Tax administration: regulations to implement the UK's automatic exchange of information agreements

As part of their continuing drive to prevent tax avoidance, the Chancellor announced the implementation of obligations under the European Union (EU) Revised Directive on Administrative Cooperation (Council Directive 2014/107/EU) to improve international tax compliance, and the UK's obligations under Competent Authority Agreements with non-EU jurisdictions for the Common Reporting Standard (the CRS).

HM Treasury will be introducing regulations creating due diligence and reporting obligations for UK financial institutions. This requires financial institutions to:

identify accounts maintained for account holders who are tax resident in jurisdictions with which the UK has entered into an agreement to exchange information about a wide range of financial accounts and investments to help tackle tax evasion

collect and report information in a specified manner on specified persons to HMRC

The regulations will have effect on and after 1 January 2016 in relation to the Directive on Administrative Cooperation and the Competent Authority Agreements, and 21 days from the date these regulations are laid in relation to the Foreign Account Tax Compliance Act agreement.

More than 85 percent of Self Assessment tax returns are completed online. But many of those completing returns have to provide information that HMRC already holds. Now, HMRC is exploiting new digital technologies to create even better services that are truly built around its customers’ needs. By early 2016, the first ten million individuals will have access to their own digital tax account. Over time, these will fundamentally transform the way in which taxpayers interact with the tax system.

The process will be simple, personalised and secure, offering an increasing range of integrated services. The accounts will bring together in one place all the information that taxpayers need to understand their tax position — just like an online bank account. They will be able to register, file, pay and update their information, at any time of the year, using the digital device of their choice.

The idea is to streamline how tax works, automatically targeting help and support to customers when they need it, based on the data in their tax account. This will allow more people to solve their queries easily online, rather than by phone, letter or paper forms. By the end of the next Parliament, every individual and small business will be able to see and manage their tax affairs through their digital tax account, removing the need for annual tax returns.

This process will be very welcome for those who have access to digital technology and are confident in their ability to deal with their own tax affairs.

However there is no mention in the document, which has a forward provided by David Gaulke MP the Financial Secretary to the Treasury about what will happen to the 15% of taxpayers who do not submit their returns online. Will they have to use agents? I can imagine the comments that would be made by my nonagenarian father and aunt who think computers are marvellous as long as someone else is using the computer.

Benefits and Expenses

Van Benefit for vans with 0% CO2 emissions

As previously announced, legislation will be introduced in Finance Bill 2015 to increase the current van benefit charge of £nil for vans which do not emit CO2 (zero emission vans), beginning in 2015-16. The van benefit charge for zero emission vans will be:

20% of the value of the van benefit charge for vans which emit CO2 in 2015-16,

40% in 2016-17, 60% in 2017-18, 80% in 2018-19 and

90% in 2019-20.

From 2020-21 there will be a single van benefit charge applying to all vans.

Trivial Benefit Exemption

Some years ago, HMRC introduced a Statutory Exemption on benefits that were considered trivial in nature. At the time, no monetary figure was set with the exemption. As a result, there has been a lot of confusion over the definition of the word “trivial”.

At the Autumn Statement 2014 it was announced that legislation will be introduced in Finance Bill 2015 to provide a statutory exemption from tax for qualifying trivial benefits in kind costing £50 or less.

Following technical consultation on the draft legislation, an annual cap of £300 will be introduced for office holders of close companies, and employees who are family members of those office holders. Those affected by this cap will be able to receive a maximum of £300 worth of trivial benefits in kind each year exempt from tax. Corresponding legislation will also be introduced for National Insurance contributions purposes. These changes will have effect from 6 April 2015.

Dispensations

Currently, employers are required to report all expenses on forms P11D unless one of the following three conditions apply:

The employer holds a dispensation

The employer has paid the tax and NI on behalf of the employee using the PAYE Settlement Agreement arrangement, or

There is a statutory exemption

Legislation is to be introduced in Finance Bill 2015 to exempt from tax certain expenses payments and benefits in kind provided to employees. The legislation will apply where employees would have been eligible for tax relief if they had incurred and met the cost of the expenses or benefits themselves.

This exemption replaces the need for either a dispensation or reporting to HMRC.

Employer Provided Cars

In his Budget presentation, the Chancellor announced changes to company car taxation which will take place in the 2019/20.

There will be an increase the appropriate percentage of the list price of company cars subject to tax by 3 percentage points for cars emitting more than 75 grams of carbon dioxide per kilometre (gCO2/km), to a maximum of 37%.

The 3 percentage point differential between the 0-50 and 51-75 gCO2/km bands and between the 51-75 and 76-94 gCO2/km bands will remain. The appropriate percentage for the 0-50 and 51-75 gCO2/km bands will, therefore, also increase by 3 percentage points.

Pensions – lifetime allowance

Legislation will be introduced in the new Parliament to reduce the pensions lifetime allowance to £1million from 6 April 2016. Fixed and individual protection regimes will be introduced alongside the reduction in the lifetime allowance to protect savers who think they may be affected by this change.

Abolition of Class 2 National Insurance contributions

In his Budget presentation, the Chancellor announced its intention to abolish Class 2 NICs in the next Parliament and reform Class 4 NICs to introduce a new benefits test. The government will consult on the detail and timing of these reforms later in 2015.

Employment intermediaries

The government will consult on detailed proposals to restrict tax relief for travel and subsistence, for workers engaged through an employment intermediary, such as an umbrella company or a personal service company, and under the supervision, direction and control of the end-user.

This follows a discussion paper published shortly after Autumn Statement 2014 on Employment Intermediaries and travel and subsistence relief that furthered the government’s understanding of the issues. Any legislative changes would take effect from 6 April 2016 and would be legislated for in a future Finance Bill.

As mentioned earlier, I will be posting detailed updates on the budget and the impact the changes will have for payroll professionals, if you found this useful please either follow my updates, follow The Learn Centre on LinkedIn or sign up for The Learn Centre weekly newsletter.

Please add any comments or questions to the discussion below.

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