Whether your assessment is that the Budget “puts the next generation first” or is a Budget “with unfairness at its very core”, it would be hard to deny that George Osborne has packed a lot in to his 2016 Budget.
With headlines centred mainly on Corporation Tax reliefs, ‘sugar tax’ and the introduction of a Lifetime ISA, public bodies would be forgiven for thinking that the Chancellor had left them well alone on this occasion. However, within the many pages of the published ‘Budget 2016’ document are a number of changes and proposals which impact public bodies. A summary of these is shown below. Please note that this eAlert is intended as an early indicator of current Government thinking on tax matters and our intention, as with last November’s Autumn Statement, is to provide, in due course, a more considered appraisal of the Budget and our response to it. Due to the lack of detail in the documents available on Budget Day, our summary contains an element of ‘informed speculation’ so should not be relied upon for advice or guidance.
- Off-Payroll engagements in the public sector
The Chancellor has confirmed that informal arrangements introduced by the Treasury in 2012 will be formalised with effect from April 2017. The proposed legislation will affect public bodies when they engage directly with a personal service company. In these cases, the public body will have statutory responsibility for ensuring that the appropriate rules apply and that the ‘worker’ pays the right amount of tax. The intention is to require the public body to test compliance with IR35 rules when it engages a worker via the worker’s personal service company. There is no indication as yet as to the sanctions that might be imposed on the public body in circumstances where it is deemed to have failed to meet its obligations. The imposition of potentially onerous new responsibilities on the sector will not be welcomed, especially given that the changes will not apply to private sector employers. However, there is a promise of ‘Consultation’ relating to a simpler set of tests and on-line tools helping engagers in determining whether IR35 rules apply.
- Salary sacrifice
The Government is considering limiting the range of benefits that attract income tax and/or NIC advantages when provided as part of salary sacrifice arrangements. At this stage there is no clear indication as to which benefits it may be targeting though it has clarified that the changes will not impact on pension saving, childcare and ‘health related’ benefits, such as cycle to work. No timescales have been provided and there is no mention at this stage of any consultation process.
- Tax/NIC treatment of ‘pay-offs’
It has been proposed to change the tax and NIC rules in respect of payments made on termination of employment. The changes proposed by last years’ consultation document appear to have been scrapped, in favour of a more simple measure, namely the introduction of employer NICs for termination payments exceeding £30,000. The proposed timescale for change to take effect is April 2018 so there is clearly plenty of time for further movement.
With regard to the general application of the £30,000 rules going forward, the wording of the Budget 2016 document could be interpreted as suggesting that it will apply in cases of redundancy or dismissal but not in cases of resignation. A different interpretation could, however, also be applied.
- Travel & subsistence
Despite the discussion document released last September, it has been decided that the current rules for applying tax relief for travel and subsistence work well for the majority of employees and therefore the proposed changes have been dropped.
- NIC/tax alignment
The Government supports the recommendations of the Office for Tax Simplification (‘OTS’) and will ask it to review the impact of moving NIC to an annual, cumulative and aggregated basis in line with income tax. At the same time the OTS will look at moving employer NICs – we presume Class1A, though this is not stated – to a payroll basis.
- Personal allowances/higher rate threshold
The government has pledged to raise the level of personal allowances to £12,500 by the end of the current Parliament and to increase the higher rate threshold to £50,000 in the same period. To demonstrate this commitment, personal allowances will increase from £11,000 (2016/17) to £11,500 (2017/18), while the higher rate threshold will increase from £42,700 (2016/17) to £45,000 (2017/18).
- National minimum wage (‘NMW’)
We already know that there is a new ‘National Living Wage’ (‘NLW’) of £7.20 per hour being introduced from April 2016. This applies to employees aged 25 or over. The Budget also confirmed the NMW rates to apply from October 2016, the main one for 21 to 24 year olds being set at £6.95 per hour. With effect from April 2017, the NLW and NMW will be brought into line, in terms of the timing of their annual update.
- Shared parental leave and pay
Consultation has been announced regarding the commitment to extend shared parental leave and pay to working grandparents.
- Employer-arranged pension advice
In a move perhaps designed to recognise the complexity of pension issues such as the annual and lifetime allowances, the Budget has proposed an increase, from £150 to £500, in tax and NIC relief for the costs of employer-arranged pensions advice, to take effect from April 2017. Unfortunately, an employer’s ability to offer this tax free service under salary sacrifice arrangements might be adversely impacted by a separate Budget announcement as reported above.
- Extension to pay-rolling benefits
With effect from April 2017, it will be possible to elect to payroll the benefit of non-cash vouchers and credit tokens, items that were excluded from the new rules when they were legislated for at the start of 2016/17.
- PAYE settlement agreements (‘PSAs’)
A Consultation will be launched aimed at simplifying the process for applying for and agreeing PSAs with HMRC.
- Making good provisions
These provisions apply in relation to certain form P11D benefits and allow employees to reduce or prevent a benefit in kind arising by making a payment to the employer, usually in respect of the private use of the item concerned. The dates by which employees are required to ‘make good’ vary according to the benefit concerned, so Consultation will begin with the aim of aligning these dates.
- Trivial benefits
No surprises here with the anticipated statutory exemption for ‘welfare’ related items costing £50 or less taking effect from April 2016.
- Company cars
The Government has confirmed its continued commitment, to 2020/21 and beyond, to basing company car tax on the CO2 emissions of vehicles. In due course, it will consult on reform of the bands for ultra-low emission vehicles.
The Budget confirms that the new childcare arrangements will start to apply for parents of younger children in April 2017 with a ‘phased’ approach. It has also confirmed that, to support the transitional arrangements, the current employer childcare schemes will remain open to new entrants until April 2018.
Value Added Tax
- Registration and deregistration limits
From 1 April the VAT registration and deregistration limits each increase by £1000 to £83,000 and £81,000 respectively. This will not directly impact local authorities as they have a £nil registration threshold, but may be relevant to other public bodies and trading subsidiaries.
- Consultation on penalty for participating in VAT fraud
The Government will consult on a new penalty for participating in VAT fraud in spring 2016. Subject to the consultation, the intention is to legislate in Finance Bill 2017
- VAT refunds for shared services
As previously announced, the Government will legislate to enable named non-departmental and similar bodies to claim a refund of the VAT they incur as part of a shared service arrangement used to support their non-business activities.
Stamp Duty Land Tax
- Reform of charging provisions for non-residential property
From 17 March there is a change to the rules for calculating the SDLT charged on purchases of non-residential properties and transactions involving a mixture of residential and non-residential properties. The changes will only impact on transactions with an upfront payment worth more than £150,000 or a lease net present value of more than £5 million.
Climate Change Levy
- Increase in the main rates of CCL
From 1 April 2019 there will be an increase in the main rates of CCL to cover the cost of CRC abolition in a fiscally-neutral reform and incentivise energy efficiency in CCL-paying businesses.
- All schools expected to become academies
The Government has announced a drive forward in the radical devolution of power to school leaders, expecting all schools to become academies by 2020, or to have an academy order in place to convert by 2022.