UK: Employment Taxes

Last Updated: 20 March 2014
Article by Smith & Williamson

The commentaries below are written in general terms. You are strongly recommended to seek specific advice before taking any action based on the information given, both in the commentaries and in the publication.

Tax free childcare

The Government has announced improvements to be made to the new system of tax-free support for childcare costs that was first published in Budget 2013 for implementation in the autumn of 2015.  Maximum support will now be 20% of costs up to £10,000 per child and children under 12 will qualify within the first year of operation. All parents of the child must be working, not earning over £150,000 per annum and not receiving support through tax credits or universal credit.

Comment

The original announcement in 2013 involved financial support for parents equal to 20% of up to £6,000 of childcare costs incurred per child. The child concerned had to be under five and support for older children (aged 5 to 11) was to be phased in over a period of years. The new criteria will provide obvious advantages for very many parents when the time comes, although the support is cut off from the child’s twelfth birthday. It is likely that the new, enhanced, support will make for a more straightforward decision for parents who, in autumn 2015, are members of an employer supported childcare scheme and will have the option of staying in this rather than converting to the new regime.

Construction industry scheme

It is proposed to consult over the summer on the Construction Industry Scheme: another area of burdensome administration, especially for smaller employers/contractors.

No comment

Anti-avoidance measures

Several anti-avoidance measures surrounding how workers are engaged are referred to in the Budget 2014 announcements.  In fact, all of these were contained either  in the Budget 2013 or in the Autumn Statement 2013 and, since then, HMRC has consulted a draft legislation with effect from 6 April 2014 has been produced.  A summary of these are:

  • Offshore intermediary companies: Draft legislation, which if enacted, will place the obligation to operate PAYE and NIC on any UK associated company of the offshore entity if the offshore entity has not arranged to make the payment.
  • Onshore employment intermediaries: Legislation is proposed from 6 April 2014 which will deem workers to be employees if certain conditions, such as being subject to the control, supervision or direction of any person, are satisfied.  The obligation to operate PAYE and NIC will fall to the employment intermediary, such as an agency.  In instances where the agency does not operate PAYE and NIC, there is a requirement to keep evidence to demonstrate that control, supervision or direction does not apply.  Further regulations will be brought in which will require agencies to make quarterly returns under RTI (Real Time Information) of workers to whom gross payments have been made.
  • Dual Contracts: The draft legislation specifies key conditions which will be required to be satisfied.  If the conditions are not satisfied, HMRC will ‘deem’ that one contract of employment exists and the employee will be taxed on that basis.  For non-domiciled employees, this could have significant tax implications as the overseas contract will be subject to UK tax on an arising basis, not a remittance basis.

Comment

The measures commented on in the Budget are in line with what was previously announced.  It is reinforcement of the focus on clamping down on perceived avoidance but at the same time potentially increasing administration for businesses which have entered into arrangements for commercial reasons with no tax avoidance intention.

Tax simplification for employee benefits, expenses and share schemes

There is to be further work generally in the area of tax simplification particularly in employment tax.

Broadly there are three relevant areas – employee benefits; employment related securities and the administration of CIS (which is linked to the operation of PAYE). The Office of tax Simplification (OTS) has been active and has produced reviews both for employee benefits and expenses and employee share schemes.

So far as employee benefits and expenses are concerned, this is a response to a second report of the OTS published in January this year.  The main thrust as far as this report is concerned is broadly to reduce the amount of administration required concerning benefits provided.  Thus as a broad concept the one overarching idea would be to payroll benefits, so as to reduce hugely the number of forms p11d produced annually.  The Government is also prepared to look at its other proposal to remove the totally antiquated threshold of £8,500, to introduce a trivial benefits exemption and a general exemption for non-taxable benefits.

Travel and subsistence rules are also on the list for review. The OTS’s work on this topic is by no means complete so we may anticipate further changes in the future as well on such matters as accommodation and termination payments.

On a similar theme, the OTS has reported on the simplification of the taxation of employment related securities. This was first mentioned last year at Budget 2013 following an OTS report in January 2013.

The Government is also looking at two very interesting proposals – one around a new concept of marketable security and one wholly new simpler legal vehicle for holding employee shares.  Getting these rules right could be of great help in encouraging employee share ownership so it will be worth spending time (thought we hope, not too much) in getting these right.

Comment

These are all important areas of employee tax but if they have one common characteristic it is that they are unduly burdensome, sometimes inordinately so and are thus a barrier to business. It is encouraging, therefore, that attempts are being made to simply the tax rules in each area.

Internationally mobile employees

The Budget publications highlight the delay of one of the intended changes proposed in the draft Finance Bill: to the taxation of the relevant rules applying to internationally mobile employees.  This will now proceed a year late in April 2015 even though there is published draft legislation.

Comment

These rules are sadly relatively complex, as are the originating employment related securities rules themselves.  These have already been reformed once for non-domiciled individuals and do cry out for a substantial simplification across the board.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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