National Insurance thresholds
The government has recently announced National Insurance thresholds for 2020/21. Most thresholds will rise with inflation. Two thresholds, however, will rise by 10% from £8,632 to £9,500:
- the primary threshold - which sets the level at which employees start to pay Class 1 National Insurance contributions (NICs)
- the lower profits limit - which sets the level at which the self-employed start to pay Class 4 NICs.
The upper thresholds which apply to these two classes of NICs remain at £50,000.
The secondary threshold, which sets the level at which employers pay the main rate of NICs, only rises in line with inflation.
Off-payroll working in the private sector
The changes to the off-payroll working rules (commonly known as IR35), which came into effect in April 2017 for the public sector, will be extended to the private sector from April 2020. Draft legislation has been issued. The new rules apply to payments made for services provided on or after 6 April 2020.
The off-payroll working rules apply where an individual (the worker) provides their services through an intermediary (typically a personal service company) to another person or entity (the client). The client will be required to make a determination of a worker's status and communicate that determination. In addition, the fee-payer (usually the organisation paying the worker's personal service company) will need to make deductions for income tax and NICs and pay any employer NICs.
Only medium and large businesses will be subject to the 2020 rules, so small businesses will not need to determine the status of the off-payroll workers they engage. A small company is one which meets two of these criteria: its annual turnover is not more than £10.2 million: it has not more than £5.1 million on its balance sheet: it has 50 or fewer employees. For unincorporated organisations it is only the annual turnover test that applies.
In January 2020, the government announced a review of the implementation of the April 2020 reform, to address concerns from affected businesses and individuals. The government has confirmed the changes will go ahead but:
- businesses will not have to pay penalties for errors relating to off-payroll working in the first year, except in cases of deliberate non-compliance
- there will be a legal obligation on clients to respond to a request for information about their size from the worker or the fee-payer.
Employer provided cars
The scale of charges for calculating the taxable benefit for an employee who has use of an employer provided car is computed by reference to bands of CO2 emissions multiplied by the original list price of the vehicle. The maximum charge is capped at 37% of the list price of the car.
For 2019/20 the rates increased by 3% from the rates applying for 2018/19.
The government announced in Budget 2017 that CO2 emissions for cars registered from April 2020 will be based on the Worldwide Harmonised Light Vehicles Test Procedure (WLTP). Draft legislation has been issued to amend the previously planned benefit percentages for 2020/21 through to 2022/23:
- All zero emission cars will attract a reduced percentage of 0% in 2020/21 and 1% in 2021/22, before returning to the planned 2% rate in 2022/23.
- For cars registered before 6 April 2020, the current test procedure will continue to apply and there are no further changes to percentages previously set for 2020/21. These rates will be frozen at the 2020/21 level for 2021/22 and 2022/23.
- For cars first registered from 6 April 2020 most rates will reduce by 2% in 2020/21 before returning to planned rates over the following two years, increasing by 1% in 2021/22 and 1% in 2022/23.
WLTP aims to be more representative of real world driving conditions, compared to the current test known as the New European Driving Cycle. The government estimates that reported CO2 values may be on average about 20 – 25% higher under WLTP compared to the current test.
The Employment Allowance provides businesses and charities with relief from their employer NICs bill. Regulations have been issued to restrict the Employment Allowance, from 6 April 2020, to those employers whose employer NICs bill was below £100,000 in the previous tax year. Employers who are connected to other employers (such as companies within a group) will need to add together all of their employer Class 1 NICs liabilities incurred in the tax year prior to the year of claim to determine eligibility.
The maximum Employment Allowance will be increased from £3,000 to £4,000 with effect from 6 April 2020.
From 6 April 2020 the Employment Allowance will operate as de minimis State aid. This means it will contribute to the total aid a business is entitled to under the relevant de minimis State aid cap.
De minimis State aid rules apply if a business engages in economic activity, providing goods or services to the market. Most businesses will not have received de minimis State aid before so will not need to do further checks to determine if they are eligible for the Employment Allowance. As this is now classed as State Aid, additional care needs to be taken by companies that are claiming R&D Tax Relief under the SME scheme. As both are classed as State Aid claiming the allowance may result in the company being restricted to claiming R&D relief under the RDEC scheme, resulting in a significantly lower benefit from the claim.
Class 1A liabilities on Termination Awards
A new liability to Class 1A NICs comes into effect on 6 April 2020 on termination awards over £30,000 and payments from sporting testimonials above £100,000. The new Class 1A NICs liability applies to non-contractual taxable termination awards over a £30,000 threshold, that have not already incurred a payroll Class 1 NICs liability as earnings.
Unlike the Class 1A NICs liability payable on benefits in kind this new liability will not be payable and reported via the annual P11D(b) payment/reporting process. Instead, from 6 April 2020 onwards, Class 1A liabilities arising on taxable termination awards which comprise of cash and/or cash equivalent payments, will be paid and reported through the PAYE/Real Time Information (RTI) process.
This new Class 1A liability will not apply to any termination awards paid after 5 April 2020 in respect of employment which was terminated before 6 April 2020.
Before 6 April 2020, employers should ensure that their payroll software has been updated to enable them to pay and report the new Class 1A NICs liabilities, arising on termination awards, through RTI.
Loan Charge review
The Loan Charge tackles disguised remuneration tax avoidance schemes. These are tax arrangements that seek to avoid income tax and NICs by paying income to individuals in the form of loans, usually via an offshore trust, with no expectation that the loans will ever be repaid. The charge applies to any loans made through disguised remuneration schemes after 6 April 1999, which had not been repaid by 5 April 2019.
Draft legislation has been issued to amend the scope of the Loan Charge:
- It will now only apply to outstanding balances of disguised remuneration loans made between 9 December 2010 and 5 April 2019 inclusive.
- It will not apply to loans made in tax years before 2016/17 where a reasonable disclosure of the use of a disguised remuneration tax avoidance scheme was made within the relevant tax return or associated documents where appropriate, and HMRC failed to take any action (for example by opening an enquiry).
- Those affected by the Loan Charge will be able to elect to split their loan balance over three consecutive years 2018/19 to 2020/21 (rather than the full charge arising in 2018/19).
- The date by which the additional information form must be returned to HMRC will move from 1 October 2019 to 1 October 2020. The form requires taxpayers to provide full information to HMRC relating to any outstanding disguised remuneration loans for which they will need to make tax payments.
The amendments have been made due to concerns raised about the impact of some aspects of the charge, particularly the large tax bills arising in 2018/19 for individuals who had used the schemes. An estimated 11,000 individuals will be removed from the charge due to the date the loan charge applies being changed to 2010 and the provisions for those who have made reasonable disclosures. There are many individuals who will still have tax bills to pay and HMRC is introducing special 'time to pay' arrangements to allow some individuals to pay over a number of years.
National Living Wage (NLW) and National Minimum Wage (NMW)
Significant increases in minimum wage rates take effect from 1 April 2020. The NLW, which is the rate for workers aged over 25 years, increases by 6.2%. The government states this equates to an annual pay rise of up to £930 for a full time worker. From 1 April 2020, the new hourly rates of NLW and NMW are:
- £8.72 for those over 25 years old
- £8.20 for 21-24 year olds
- £6.45 for 18-20 year olds
- £4.55 for under 18s
- £4.15 apprentice rate for apprentices under 19, and those 19 and over in their first year of apprenticeship.
Tax treatment of welfare counselling provided by employers
The government will extend the scope of non-taxable counselling services to include related medical treatment, such as cognitive behavioural therapy, when provided to an employee as part of an employer's welfare counselling services. The changes will take effect from April 2020.
National Insurance holiday for employers of veterans in the first year of civilian employment
To support the employment of veterans, the government is meeting the commitment to introduce a National Insurance holiday for employers of veterans in their first year of civilian employment.
A full digital service will be available to employers from April 2022. However, transitional arrangements will be in place in 2021/22 which will effectively enable employers of veterans to claim this holiday from April 2021.
The holiday will exempt employers from any NICs liability on the veteran's salary up to the Upper Earnings Limit. The government will consult on the design of this relief.
Increasing the flat rate deduction for homeworking
The government will increase the maximum flat rate income tax deduction available to employees to cover additional household expenses from £4 per week to £6 per week where they work at home under homeworking arrangements. This will take effect from April 2020.
Review of Enterprise Management Incentives (EMI) scheme
The government will review the EMI scheme to ensure it provides support for high-growth companies to recruit and retain the best talent so they can scale up effectively, and examine whether more companies should be able to access the scheme.
Van benefit charge nil-rating for zero emission vans
From April 2021, the government will apply a nil rate of tax to zero-emission vans within the van benefit charge.