Following six separate consultations in August, there have been proposals to significantly change the tax treatment of both benefits in kind and termination payments. The shift was indicated in recent Budgets and Autumn Statements, and follows on from a number of proposals from the Office of Tax Simplification (OTS). However, due to the considerable amount of short term complication to comprehend, it’s likely that both tax agents and employers will not see this as a step towards making the system simpler.
One area affected will be salary sacrifice, which had previously been flagged as unsustainable due to the loss of employer National Insurance payments it has generated. Childcare voucher schemes provided by employers will not be able to accept any new members from 2018, although existing members will be allowed to continue. Aside from employer-provided bicycles, pensions contributions and advice, and intangible benefits such as additional annual leave, all other salary sacrifice schemes will stop offering tax advantages and employer NI savings. This is due to the benefit now being taxed either through payroll or P11D, making them subject to class 1A NI.
The simplification of the PAYE Settlement Agreements (PSA) process is likely to be welcomed by employers who use these for non-exempt benefits-in-kind. It has been proposed that PSAs will not need to be requested annually, with employers instead making a digital self-certified return. Whilst the range of benefits able to be included in a PSA will not be widened, some employers will have removed items under £50 – classed as small value items – from their PSA through the recent trivial benefit exemption.
Whilst one of the most popular benefits-in-kind continues to be a company car, it also remains highly taxed. The Treasury has begun consultation on company car tax for ultra-low emission vehicles (ULEVs) from 2020 onwards. It’s believed that making ULEVs attractive to company car users will make them more widely used, as the average time before a company car is privately sold is three years, thereby introducing more ULEVs into the market. At the moment, the Treasury is exploring whether not only CO2 emissions but also the distance a car is able to travel between recharges should be used to determine its tax rate.
There has also been consultation on aligning tax and NI treatment of termination payments, allowing the £30,000 tax exemption to apply equally to employer NICs. From April 2018, any payment over £30,000 – whether contractual or not – would be subject to both tax and employer NI.