Employment taxes summary: Focus on anti-avoidance
“If you believe that no news is good news, then this is the best Budget in a generation,” commented PKF employment and benefits partner Philip Fisher on the firm’s website.
Treasury ministers made it clear in the run up to the Budget that there would be no further tax increases, but the Chancellor did confirm that the extra half percent NIC rate increases (on top of a previously announced 0.5% rise) announced in the Pre-Budget Report would apply as planned from April 2011.
With two exceptions linked to the lower earnings limit, all NICs rates and thresholds will remain unchanged from 2009/10. For 2011/12, the main rates of Class 1 and Class 4 NICs will rise by 1% to 12% and 9%. The employer rate for both Class 1A and 1B contributions will rise to 13.8%. The primary threshold and lower profits limit will be increased by £570 to compensate the lowest earners.
Aside from this primary measure there was little to worry benefits and remuneration advisers, unless they are engaged in cutting edge avoidance efforts, many of which will be targeted by specific measures.
The Institute of Payroll Professionals concurred with PKF's view: "Very little for payroll as everything we needed to know was in the 2009 Pre-Budget Report (PBR)," the IPP noted, adding that the Budget merely confirmed those announcements.
Alarm bells sounded at the IPP during the Chancellor's speech when he said he intended to sell off the English student loan book as part of a £16bn asset disposal. However the Department for Business, Innovation and Skills (BIS) insisted the disposal would not mean higher loan repayments for students.
On closer inspection of the Budget Notes, proposed benefits exemptions for employer-supported childcare schemes and vouchers (BN36) and alterations to rules broadening the reach of the Enterprise Management Incentives (BN13) are not worth worrying about for the moment. As with many measures announced this year, the government set out its intentions, but they will have to wait until the Finance Bill planned for after the election.
Fans of electric cars and the embryonic electric vehicle industry got a boost from BN43, which announced that the Finance Bill (whether before or after election not specified) will introduce a relief from the chargeable benefit where a company-provided car or van also used privately does not produce CO2 emissions. The chargeable benefit will also be produced where cars emit less than 75g of CO2 per kilometre.
By far the greatest volume of Budget employment tax paperwork focused on a variety of avoidance schemes, including:
- Share Incentive Plans (BN39) – a measure will be included in the Finance Bill, but effective from today, to combat abuses of a Corporation Tax (CT) deduction provision that lets companies pay money to SIP trustees to buy shares from director-shareholders, but where no real value is transferred to employees. HMRC will be able to withdraw approval of a SIP where alterations to share capital or changes in rights attaching to shares materially affect the value of participants’ plan shares.
- Company Share Option Plans (BN40) – Legislation will be introduced to stop arrangements designed to circumvent the financial limits on these schemes, which allowed companies to grant share options to in listed companies. Again, the measure will take effect from today, even though the legislation has been passed.
- BN41 promised "significant restructuring" of the legislation covering transactions in securities. A wider range of companies will be covered and a new income tax advantage test and new exemption covering fundamental changes in ownership of close companies will be introduced.
“Companies that are subsidiaries of listed companies will now be prevented from taking advantage of CSOPs because someone has taken advantage of it and used it in a way that was not intended,” commented Fisher. “The same applies to the other anti-avoidance measures - that’s been the history of our tax regime for the past two or three decades.”
The habit of football clubs and other employers of sitting on their PAYE payments to HMRC will be targeted in a post-election 2010 Finance Bill requiring those with a history of late payment and non-compliance to pay a security. “The measure will affect those wo are determined not to pay and will not affect those who need time to pay and who make payment arrangements with HMRC,” the department said in its press announcement (BN70). The new legislation will also introduce a criminal offence where a person required to give a security fails to do so. Those found guilty would be liable for a fine up to £5,000. The measure will not appear until the post-election Finance Bill as HMRC said there will be a 12-week consultation period before the regulations are introduced.
Meanwhile, BN67 sets out government plans to bring VAT, Insurance Premium Tax, Aggregates Levy, Climate Change Levy, Landfill Tax and Excise Duties into a common late filing and late payment penalty regimes. The measure is also planned for a post-election Finance Bill to complete the legislative programme started in Finance Act 2009. As with Self Assessment and CIS, the penalties will start at £100 immediately after the due date for filing (whether or not the tax has been paid) and rises £100 for each subsequent deadline (quarterly or monthly) missed up to a maximum of £400. From that point additional penalties of 5% of the tax on the relevant return will be charged six and 12 months after the late filing. Taxpayers found to be deliberately withholding information to prevent HMRC assessing a tax liability could face penalties of up to 100% of the tax chargeable. The new regime will also create the new concept of a 12-month “penalty period” during which any further failures will attract a penalty of 2% on the tax due.