Payroll insight
at Budget 2017. ● Employee business expenses – The Government will publish a call for evidence at Budget 2017 on the use of the income tax relief for employees’ business expenses, including those that are not reimbursed by their employer. NMW and NLW Following the alignment of the effective date for increases in the national minimum wage (NMW) and national living wage (NLW) rates, the following rates increase from April 2017: ● a 30p increase in the rate for over-25- year-olds from £7.20 to £7.50 per hour ● a 10p increase in the rate for 21–24-year-olds from £6.95 to £7.05 per hour ● a 5p increase in the rate for 18–20-year- olds from £5.55 to £5.60 per hour ● a 5p increase in the rate for 16–17-year- olds from £4.00 to £4.05 per hour ● a 10p increase in the rate for apprentices from £3.40 to £3.50 per hour ● a 40p increase in the accommodation offset from £6.00 to £6.40 a day (from £42.00 to £44.80 a week). The Low Pay Commission (LPC) is tasked with recommending increases in the NLW that would achieve the Government’s target of 60% of median earnings by 2020. In its autumn 2016 report, the LPC estimated that this level would be £8.61 using October 2016 data (reduced from the estimate in the spring report of £9.16). The Government will invest an additional £4.3 million per year to strengthen NMW enforcement. This will fund new HM Revenue & Customs (HMRC) teams to proactively review those employers considered most at risk of non-compliance with the NMW. The Government will also provide additional support targeted at small businesses to help them to comply, and a campaign aimed at raising awareness amongst workers and employers of their rights and responsibilities. Non-domiciled individuals As previously announced, the Government will end the permanency of non-domiciled tax status. From April 2017, non-domiciled individuals will be deemed UK-domiciled for tax purposes if they have been UK resident for fifteen of the past twenty years, or if they were born in the UK with a UK domicile of origin. Non-domiciled
individuals who have a non-UK resident trust set up before they become deemed- domiciled in the UK will not be taxed on income and gains arising outside the UK and retained in the trust. The Government will change the rules for the business investment relief scheme from April 2017 to make it easier for non- domiciled individuals who are taxed on the remittance basis to bring offshore money into the UK for the purpose of investing in UK businesses. The Government will continue to consider further improvements to the rules for the scheme to attract more capital investment in British businesses by non-domiciled individuals. Off-payroll working Following consultation, the Government will reform the off-payroll working rules in the public sector from April 2017 by moving responsibility for operating them and for paying the correct tax to the body paying the worker’s company. This reform aims to tackle the high levels of non-compliance with the current ‘IR35 rules’ and will mean that those working in a similar way to employees in the public sector will pay the same taxes as employees. In response to feedback during the consultation, the 5% tax-free allowance will be removed for those working in the public sector, reflecting the fact that workers no longer bear the administrative burden of deciding whether the rules apply. Termination payments As announced at Budget 2016, from April 2018 termination payments over £30,000, which are subject to income tax, will also be subject to employer NICs. Following a technical consultation, tax will only be applied to the equivalent of an employee’s basic pay if their notice is not worked, making it simpler to apply the new rules. The Government will monitor this change and address any further manipulation. The first £30,000 of a termination payment will remain exempt from income tax and NI. Pensions ● Money purchase annual allowance – The pension flexibility reforms introduced in April 2015 included the ability to withdraw part of a defined contribution pension fund while retaining the option to continue making pension contributions. If a pension is accessed in this way, the annual allowance for tax-relievable pension
contributions was reduced from £40,000 to £10,000, which was called the money purchase annual allowance (MPAA). The Government proposes to reduce the MPAA to £4,000 with effect from April 2017 to limit the extent to which individuals could recycle funds and gain double tax relief. A consultation (closing date 15 February 2016) seeks views of stakeholders as to whether they agree that a reduced MPAA would minimise re-cycling pension savings and that, coupled with ongoing monitoring, the new MPAA will allow the continued successful roll-out of automatic enrolment. ● Foreign pensions – The tax treatment of foreign pensions will be more closely aligned with the UK’s domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic ones. The Government will also: close specialist pension schemes for those employed abroad (‘section 615’ schemes) to new saving; extend from five to ten years the taxing rights over recently emigrated non- UK residents’ foreign lump sum payments from funds that have had UK tax relief; align the tax treatment of funds transferred between registered pension schemes; and update the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes. Tax-free childcare Confirmation was provided that tax-free childcare will be introduced gradually from early 2017, with rollout beginning upon completion of the trial. Once the scheme is fully rolled out, the Government will review its operation to ensure it is delivering as intended and to assess the benefit it is delivering for working parents. Tax administration and simplification ● HMRC external performance reporting – From 2017, HMRC will publish its customer service performance data more regularly and in greater detail. This will include the monthly publication of digital, telephony and postal performance data, as well as new customer complaints data. ● Making tax digital – In January 2017, the Government will publish its response to making tax digital consultations and provisions to implement the previously announced changes. ● Tax enquiries: closure rules – The
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Issue 27 | February 2017
| Professional in Payroll, Pensions and Reward |
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