2017 - A year with two Budgets
31 July 2017
Written by Samantha Mann MAAT, MCIPPDip, CIPP senior policy and research officer, for Global Payroll Managers Institute
In my previous article, I began my round-up with a mention of the outcome from the Scottish Budget which revealed the intention of having a different higher rate threshold of £43,430 for the 2017-18 tax year compared to those for the rest of the UK (rUK) which will be £45,000.
Shortly after that announcement came the announcement that contrary to their Budget report, the Scottish Parliament had voted to freeze the basic rate of income tax of 20 percent and also freeze the higher and additional rates at 40 percent and 45 percent respectively, along with them maintaining the higher rate of income tax threshold at £43,000 for 2017/18.
Proof if such was needed, that ‘a week is a long time in politics’.
UK Spring Budget
In the meantime, the UK Spring Budget went ahead as planned on 8 March 2017, opening with a quip from the Chancellor about how he hadn’t been the first Chancellor to state his intention to deliver the ‘last Spring Budget’.
Quips from the Chancellor of the Exchequer were probably in greater evidence than information or proposals for future pay related policy change, in fact, it was a very quiet Budget when viewed from a payroll perspective. This made a pleasant change however our joy was tempered slightly with the knowledge of the changes already planned for implementation from 6 April 2017 and the fact that there would be another Budget later in the year.
That is not to say that there was nothing at all and from a CIPP policy team perspective we were particularly interested in the mention of future consultation work.
There were several payroll and reward relevant consultations mentioned within the Spring Budget report, amongst which was, tackling Disguised Remuneration avoidance schemes, employer-provided accommodation, Digital Tax Administration (otherwise referred to as Making Tax Digital)
Together with Calls for Evidence planned on the subjects of taxation of employee business expenses and taxation of benefits in kind.
Taxation of employee expenses call for evidence
There were no real surprises with any of these details and since then the Call for Evidence on the taxation of employee business expenses has been published and plans to run until 12 June 2017.
This Call for Evidence aims to help government better understand the use of existing tax reliefs on employee expenses as the direct cost to the exchequer, where employees claim tax relief on expenses that have not been reimbursed by the employer, currently stands at £800 million a year and the amount reflects a 25% increase in claims between 2009-10 and 2014-15. The government wants to understand why this increase has occurred, particularly where employees choose to use an agent to submit their claims, rather than submit the claims directly to HMRC.
The government wants to gather evidence to better understand:
If the current rules or administration can be made more clear and simple – research carried out by the Office of Tax Simplification (OTS) suggests they can
Whether tax rules for expenses are fit for purpose in our modern economy – much has changed since the current tax rules were first introduced in the mid-nineteenth century and working practices have seen a shift away from manufacturing towards the service sector. OTS research had resulted in a call for general principles to be re-established to ensure they were in line with modern practice
Why the cost to the exchequer for direct claims by employees, particularly through the services of an agent, has increased to ensure that the reliefs are being used as intended
Evidence is being invited from employers and employees under three main areas which are:
Current employer practices on employee expenses
Current tax rules on employee expenses
The future of employee expenses
Government has stated that it has no plans to remove the relief that is available on employee expenses, however, we have seen from earlier consultations that the cost of relief is increasingly being balanced against the concept of ‘fairness to society’ and we also know from past experience that it is proposals from such Calls for Evidence that will result in change – and that is where the real work for us will begin.
Whilst it is likely that the Call for Evidence will have closed by the time you read this article, HM Treasury is keen to gather quantitative as well as qualitative evidence from those dealing with UK employees and if you feel you can provide that to support or respond to any one of the 17 questions in the paper then the team leading this work will want to hear from you and can be contacted by email.
For sure it will be interesting to see what proposals come forward from this work in a future consultation.
The impact of off-payroll working in the public sector on the collection of student loans
From 6 April a new responsibility will be placed on:
Public authorities who hire off-payroll contractors
Agencies and third parties who supply contractors to the public sector
Contractors who provide their services to a public authority through an intermediary
The new rules, which will see the responsibility for assessing whether a contract for services is caught by Intermediaries legislation (IR35) pass from the contractor providing the services, to the public sector engager.
HMRC has designed a new digital tool to aid public sector engagers, agencies and contractors when making this decision.
The new regime will impact all payments made from 6 April, regardless as to whether the work was completed before then.
Where it is deemed that an engagement is caught by the rules, the fee payer will become the employer for the purposes of collecting income tax and class 1 National Insurance contributions (NIC). The payment will be processed for income tax and NIC deductions using the payroll system and details of the worker will be submitted to HMRC using the Full Payment Submission (FPS).
In the meantime, in another part of HMRC, processes continue regarding the collection of Student loan repayments.
The contractor caught under IR35 is responsible for accounting for their student loan repayments when they submit their annual Self-Assessment (SA) return, and it is via SA that they account annually for repayment on their earnings (where applicable).
HMRC systems currently have no way of recognising where an individual who is detailed on the FPS is an employee or a worker caught by IR35.
As such, where their details are matched within HMRC systems as being an SL ‘borrower’ a form SL1 will be issued to the fee payer to initiate a start of student loan repayment, where earnings exceed the threshold.
If a fee payer receives an automated SL1 for a worker who is being taxed under the new regime, they are being asked by HMRC to ignore this notice and not begin to deduct student loan repayments from the worker’s fees and, where student loan deductions have already been deducted, to stop from the next available pay date.
This is not something that an automated payroll system will easily adapt to and so affected ‘employers’ will need to build into their processes, where possible, a method to prevent these repayments from starting. In the event that they can’t, the payment will be credited against the workers Student Loan Company account. Meanwhile, the worker should continue to account for student loan repayments via their Self-Assessment Tax Return.
Where an SL1 has been issued, and the public authority (or the agency serving the authority) have been able to prevent deductions being made, they will begin to receive, from HMRC, reminder emails via the Generic Notification Service (GNS) which serves as a prompt for employers to begin making deductions for student loans where none are being reported on the FPS.
This process, which began in April 2016, includes a first reminder, then if no action is returned via the next FPS, a second email prompt is issued, which is followed by a telephone call to enquire why no action has been taken. HMRC, who are unable to identify a worker, as opposed to an employee from the FPS, are unable to switch off this service for the 2017-18 tax year.
And so it would appear that for a year that will showcase two Budgets – the final Spring Budget and the first (for a while at least) Autumn Budget, then it is very much business as usual and we can only hope (and lobby for) the new timetable for such a major fiscal event will also bring with it ample time needed to implement new processes and system changes as a result of a change to tax policy.
Not only for external stakeholders, such as employers, payroll bureaux, tax agents and essential payroll software developers but also it would seem for HMRC.