FA 2017: Variations affecting payroll and pensions

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Due to the Prime Minister’s decision to hold a ‘snap’ general election in June 2017 and the lack of parliamentary time that this would allow for scrutiny of the Finance Bill 2017, the government and the opposition agreed on significant reductions in the bill so that it could receive parliamentary approval before the session closed.

This article summarises key provisions removed from the Finance Bill that have a direct effect on payroll and pensions practitioners, some of which were intended to take effect from April 2017. Finance Act 2017 (FA17) received parliamentary approval on 25 April 2017.

Provisions planned for tax year 2017-18

The following changes were to have taken effect on 6 April 2017.

Time limits for ‘making good’

Employees can make payments towards the cost of the benefits that their employer provides, which is known as ‘making good’. The payments must be made by the appropriate deadline and reported in the P11D (where relevant) in order to reduce the chargeable value of the benefit.

There are various deadlines (or none at all) for ‘making good’ in the legislation and in HMRC’s guidance so the government decided to align all the ‘making good’ deadlines to 6 July, to coincide with the P11D reporting deadline.

The changes would have only applied when benefits are reported in the P11D, and not where benefits are processed through the payroll using the statutory framework for payrolling benefits.

Money purchase annual allowance for pensions flexibility

The pensions annual allowance is the amount of tax relievable pension contributions that an individual can make to a registered pension scheme during a tax year. From 6 April 2015, the annual allowance was reduced from the standard amount of £40,000 to £10,000 for defined contribution pension funds that have been accessed under the pension flexibility reforms that were introduced at that time. This reduced level is called the money purchase annual allowance (MPAA).

The flexibility includes the option to continue making contributions into the pension scheme so, in order to limit the extent to which individuals could recycle funds and gain double tax relief, the government intended to reduce the MPAA to £4,000.

Pensions Advice Allowance

The government proposed a new Pensions Advice Allowance that would allow pension scheme members to withdraw funds from their pension pots on up to three occasions in a tax year, tax-free, to put towards the cost of pensions and retirement advice. The total value withdrawn would be capped at £500 in each tax year.

Simplification of exemptions for employee liabilities and indemnity insurance

The Finance Bill 2017 includes changes to rules where an employer funds costs or pays for legal indemnity insurance for employees for proceedings related to their employment.

It was proposed that the exemption would be expanded to cover costs, expenses and liabilities incurred in connection with giving evidence, or taking part in proceedings, in a matter related to their employment, and part of insurance premiums that relate to indemnity against such liabilities, costs and expenses.

Provisions planned for future tax years

Termination payments

Provisions were included to change the tax and NICs treatment of termination payments from April 2018.

Termination payments in excess of £30,000 would become subject to employer NICs, in line with the limit on tax-free payments.

The distinction between the tax treatment of contractual and non-contractual PILONs would be removed; they would always be liable to tax. Changes were also proposed to some exemptions.

PAYE Settlement Agreement process

The government intended to legislate to simplify the PSA process by removing the requirement to request and obtain HMRC’s agreement for items to be included in a PSA before the end of year reporting obligations, with effect from April 2018.

Making Tax Digital – digital reporting

One of the elements of the Making Tax Digital project - Making Tax Digital for Businesses - will require business (and the self-employed and those letting out property) to update HMRC at least quarterly about their main or substantial source of income, enabling HMRC to collect and process information relating to tax as close as possible to real time. Therefore, they will also be obliged to keep records in a digital format.

Provisions in the Finance Bill 2017 set out that this digital reporting and record-keeping obligation was to apply to businesses with turnovers above the VAT registration threshold from April 2018 and to business with turnovers below the VAT registration threshold from April 2019.

Taxation of ultra low emission vehicles

The appropriate percentages for the Company Car Tax charge for ultra low emission vehicles are currently identified by three bands covering the range of CO2 emissions figures from 0 to 74gCO2/km.

These bands were to be reformed from the tax year 2020-21, replacing them with seven narrower bands, some of which would take the journey range of electric vehicles into account. The provisions also contained appropriate percentages for other vehicles for tax year 2020-21.

Implications of late changes

Removing future changes from the bill will not have any immediate effect on practitioners. And there will be little or no long-term impact either, so long as their implementation is clarified and legislated for sufficiently in advance of their effective dates. Software developers, in particular, may require detailed specifications for some of the new rules.

However, several measures had taken effect some weeks before they were removed from the draft legislation. So what happens if employers have already acted on the changes, or not taken action because of them?

Take the new £500 Pensions Advice Allowance, for example. Say an employer bought advice between 6 and 25 April, expecting to use the new Allowance and following HMRC’s draft guidance in good faith. Because the allowance no longer exists, the employer must now treat this as a fully chargeable benefit that the employee must pay tax on (unless the employer decides to foot the bill).

Arguably, because the legislation and guidance were only at a draft stage, the employer should not have assumed that the new measure would pass through the parliamentary process unamended. Indeed, it is often the case that a last minute condition is added, the scope widened or narrowed, or some other adjustment made. This is an inevitable risk when changes have effective dates that are before the legislation’s implementation date.

But what about the ‘making good’ deadline changes? Previously, making good on some benefits, such as car and van fuel, and the private use of a company car or van, had to be completed before the end of the tax year. The provisional change extended this to 6 July so some employees may have delayed making good, particularly where calculation of the benefit charge is difficult to make before the tax year ends (one reason for changing the deadline in the first place). With the original deadline reinstated, employees who have failed to make good in time will have an increased tax charge. And if they have already made a payment, but after the deadline, it will not have any effect on the benefit charge.


The sheer volume of changes to this Finance Bill is likely to mean that some employers - and possibly some software developers - have been caught out by the moving goalposts. So far, there is no indication from HMRC about how it would handle situations where employers have accidentally fallen foul of the rules. Nor can we expect any guidance because the looming general election shuts down practically all communications from government departments. Let us hope that HMRC will be a little lenient when chasing for payments or auditing for compliance.

And hopefully, the new legislative timetable with Budgets in the autumn will mean an end to changes scheduled to take effect before the relevant legislation is scrutinised and approved.

About Terri Bethel


Terri is lead technical material author for the Chartered Institute of Payroll Professionals.


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26th May 2017 14:06

Since this article was published ICAEW Tax Faculty have recieved confirmed from HMRC that the £500 tax exemption for employer-provided pensions advice should be treated as being effective from 6 April 2017, although the legislation to raise the limit on the vlaue of the advice from £150 to £500 per person was not included in FA 2017.

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